"The

statistical
reason for
rising price
level in
Bangladesh."

Final report
Managerial
Economics
ECO501
MBA
 BRAC University
Managerial Economics (ECO501)
Section: 01
Topic:
"The statistical reason for rising price level in Bangladesh."

Submitted to:
K. M. Jamshed Uz Zaman
Course Instructor
BRAC University

Submitted By:
Group-05
Name ID Signature
Mohammad Bin Khalid 18364021
Farzana Nayeem 18364006
Sanzana Sayeed 18364053
Maliha Shethi 18164105
Suparna Yasmin 18264007
Rudmila Siddique 18364014
Mujtaba Nurul Hamim 18164053

Submission Date: 04 December 2018

Fall-2018
MBA
Background:

The report, "The statistical reason for rising price level in Bangladesh” conveys a correlation
between the rise and fall of import price with the theory of “pass through” affect, which in
simple words refers to the increase or decrease of foreign exchange rate. Also the report
highlights how the economics theory of money supply and GDP has a direct impact on the same
situation. The two reasons stated here are somewhat correct but the given case here demands a
definitive relation with the rise/fall of import price. Here in this report we tried our best to bridge
the theories with the situation at hand to determine which is more correct or more accurate in the
given scenario. To do so, we had to go through data sources; both primary and secondary, then
process and analyze data to come to a conclusion for the aforementioned case. The findings for
the report helped us better understand why GDP of a nation affects the import prices or why the
Exchange rate of foreign currency affected the situation or how the money supply of a nation can
have the same effects on import price increase or decrease. This was a learning opportunity for
us to analyze how economics of a domestic country is affected by import prices.

i
Acknowledgement:

At the very start, I might want to express my genuine gratitude to the Almighty Allah, the
kindest and recipient for engaging me to fulfill the thesis inside planned time.
After that we would like to show the biggest gratitude our respected faulty, K. M. Jamshed Uz
Zaman course instructor of BRAC Business School, BRAC University for his constant
supervision throughout the semester and guidance to sort out all the problems we faced to
prepare this report. We are thankful to him for how he guided us with his extreme consistency in
every aspect to prepare the report.
We would also like to thank all our group members who helped us to gather information. It
would have become really a nightmare doing the job without their help.
We are grateful to all of them who helped us. We also like to thank those, who helped us by
giving their valuable time, direction and information to make the report in an appropriate way.

ii
Letter of Transmittal

04 December 2018

K. M. Jamshed Uz Zaman
Course Instructor, Managerial Economics (ECO501)
School of Business Administration, BRAC University.

Subject: Submission of report.

Dear Sir,
We take the pleasure to submit our report on the topic: "The statistical reason for rising price
level in Bangladesh.” The report gave us the opportunity to know the insight story of the reason
behind the increasing price levels in Bangladesh.
The report studies the statistically proven result behind the argument if price levels are increasing
for pass-through effect or due to money supply and gross domestic product (GDP).
Finally, we are truly grateful to you for giving us this pleasant opportunity to do this report.

Sincerely yours

Mohammad Bin Khalid Farzana Nayeem Sanzana Sayeed

18364021 18364006 18364053

Maliha Shethi Suparna Yasmin Rudmila Siddique Mujtaba Nurul Hamim

1836nnnm 18264007 18364024 18164053

GROUP 05, MBA, BRAC UNIVERSITY

iii
 Executive Summary

Imports are foreign goods and services bought by residents of a country. Residents include
citizens, businesses, and the government. It doesn't matter what the imports are or how they are
sent. They can be shipped, sent by email, or even hand-carried in personal luggage on a plane.
Therefore imports are those that are produced in a foreign country and sold to domestic residents.

Exports, on the other hand, are the goods and services produced in one country and purchased by
residents of another country. It doesn't matter what the good or service is. It doesn't matter how it
is sent. It can be shipped, sent by email, or carried in personal luggage on a plane. Thus those
produced domestically and sold to someone in a foreign country are exports.

Exports are one component of international trade. The other component is import. Combined,
they make up a country's trade balance. When the country exports more than it imports, it has a
trade surplus. When it imports more than it exports, it has a trade deficit.

However, this report is based on an article regarding the increase in prices in Bangladesh. The
main reason of rising prices is the increase in import price. Import price can rise/fall mainly
because of appreciation/depreciation in foreign exchange rate. This is called 'pass-through effect'.

As per the economics books state that the main explanatory variables for price level should
money supply and GDP. A calculation statically is therefore done to prove which reason is more
appropriate.

So this report studies the statistically proven result behind the argument if price levels are
increasing for 'pass-through effect' or due to money supply and gross domestic product (GDP).

iv
Table of Contents

Background: ................................................................................................................................................. i
Acknowledgement:...................................................................................................................................... ii
Letter of Transmittal ................................................................................................................................. iii
Executive Summary ................................................................................................................................... iv
1. Introduction: ....................................................................................................................................... 1
2. Literature Review: .............................................................................................................................. 2
3. Data Collection and Processing: ........................................................................................................ 3
Kinds of data: .......................................................................................................................................... 3
Processing: ............................................................................................................................................... 3
Limitation: ............................................................................................................................................... 3
4. Data Analysis:...................................................................................................................................... 4
5. Conclusion: .......................................................................................................................................... 7
6. Recommendations: .............................................................................................................................. 8
7. References:........................................................................................................................................... 9
Appendix .............................................................................................................................................A- 1 - 6
Data collection and processing: ....................................................................................................A- 1 - 3
Data Analysis:.................................................................................................................................A- 4 - 6
1. Introduction:

This is a research project which is a part of the ‘Managerial Economics’ course. It is based on
a contradictory fact discussed in an article and in our economics book. The article states that
in Bangladesh the main reason of rising prices is the increase in import price. Import price
can rise/fall mainly because of appreciation/depreciation in foreign exchange rate. This is
called 'pass-through effect'. But our economics books say that the main explanatory variables
for price level should be money supply and GDP. To check the authenticity of these two
statement, whether the main explanatory variables for price level should be money supply
and GDP or the pass through effect. For the purpose of the study, we have done statistical
analysis in this report and the collected data has been analyzed thoroughly using statistical
methods.

1|Page
2. Literature Review:

The relationship between the exchange rate and traded goods’ prices, known as the
exchange rate pass-through (ERPT) relationship. Gross Domestic Product (GDP) is one
of the determinants of country’s economic growth. When the domestic currency
depreciates, the prices of goods imported into that country are typically expected to rise.
What exactly will be the response of domestic price is an empirical question. For instance,
the response of domestic currency price is relatively small if foreign producers absorb the
exchange rate movements in their profit margin in order to maintain their market share in that
(importing) country. The extent of this so called “exchange rate pass-through” into import
prices therefore may be complete, partial, or negligible. This study intends to find out that
whether the main explanatory variables for price level should be money supply and GDP or
the pass through effect.

2|Page
3. Data Collection and Processing:

To complete this report on data analysis may include the collection of information or data
which can be interpreted to frame answers to our assigned questions or increase knowledge
of our report’s topic. There are several methods of acquiring data:

 Collecting new data

 Using previously collected data
 Reusing someone others data
 Purchasing data

The most of the data of this report are collected from previously collected data and reusing
someone others data.

Kinds of data: There are two kind of data. One is primary data which we can get from field
survey and another one is secondary data which we can get from online sources, previous
report on same topic, article, and journal and so on. In this report all the data are secondary
data, we found these data from news article on Bangladesh rising price and it’s reason, annual
report on price statistic of Bangladesh Bureau, and few data from managerial economics text
book also.
Processing: While all the data are collected our next step is to process those data. All our data
process by Microsoft Excel software. We need to explain the elasticity of our collected data,
so we converted our selected data value into LN. To convert into LN we use the formula with
each value of cell which is “=ln (selected cell)”.
After converting into LN data, we run regression test for data analysis. We run several test for
reaching to the expected result. Figures of each steps of regression test and collected data are
provided in appendix section.

Limitation: During prepare this report our goal is to justify which one is correct reason for
rising price in Bangladesh among Import Price, Money Supply, and Gross Domestic Product
(GDP) but we are able to gather only 15 year data. Which is comparatively very limited data
sample for accurate result. Moreover, the topic is on a broad issue of a country there are
uncountable data in secondary source and among them there are exists unreliable data also.
So, it is hard to find actual data and the way in which you collected your data represents a
limitation. In addition, our academic regulation has semester dead line for summiting any
report for specific courses. So, time is a very common limitation for studies on a report.

3|Page
 4. Data Analysis:

First step: we run regression analysis on converted data in Excel where we consider all the
independent variables (Import Price, Money supply, Gross Domestic Product (GDP)) and
dependent variable (Price level).
The results of Regression analysis (t test, F test, adjusted R square value) are mentioned in
the below table

Table 1:
Intercept Import Price Money GDP
supply
Co efficient 1.126358661 0.224087933 0.171581617 0.242681092

t test 0.225804 1.46278 0.558877 0.288249

F test 302.5967

Adjusted R 0.984762571
square

From above table, we get that t test value of GDP is 0.288249 which is less than 2. As we know
if t test value of any variable is not more than 2, then it will not pass the test. That`s why in our
next regression we do not consider GDP as independent variable. We only consider Import price
and Money supply as independent variables and price level as dependent variable.

4|Page
Second step: In this step, we exclude GDP as independent variable and only do regression
analysis in Excel on Import Price and Money supply as independent variables and price level as
dependent variable.
The results of Regression analysis (t test, F test, adjusted R square value) are mentioned in the
below table

Table 2:
Intercept Import Price Money supply

Co efficient 2.558832146 0.233404157 0.257745288

t test 6.178934759 1.621871257 3.830561659

F test 491.4012282

Adjusted R 0.985926854
square

From above table, we find that t test value of Import price is 1.621871257 which is less than 2.
As we know if t test value of any variable is not more than 2, then it will not pass the test. That`s
why in our next regression, we eliminate Import price as independent variable. We only consider
Money supply as independent variable and price level as dependent variable.

5|Page
Third Step: In this step, we exclude both GDP and Import price as independent variable and
only do regression analysis in Excel where we consider Money supply and Price Level as
independent and dependent variable respectively

The results of Regression analysis (t test, F test, adjusted R square value) are mentioned in the
below table.

Table 3:
Intercept Money supply

Co efficient 3.224281 0.365223

t test 54.12409 29.51167

F test 870.9385

Adjusted R square 0.984162

From above table, We get that t test value of money supply is 29.51167which is more than 2 and
also the value of F test is 870.9385 which is also more than 2 and value of adjusted R square is
0.984162 and it is close to 1.As we know if t test and F test value of any variable is more than 2,
and also value of adjusted R square is close to 1 then it will pass the test. So, we can say that this
test where we consider only money supply as independent variable and Price level dependent
variable do pass. So money supply can influences price level. Elasticity of money supply is
0.365233 which is less than 1 and so, it is inelastic and we can say that if 1% of money supply
increases then 0.365223% of price level increases.

6|Page
5. Conclusion:

We know that according to pass through effect Import price can influence Price level and
also money supply and GDP can change price level which we learned from our economics
book. However, when we try to prove it using statistics method (regression analysis) we
observe that variable of import price and GDP do not pass t test, that’s mean they do not
influence price level statistically Only money supply do pass all the test. So money supply
can influence price level. The elasticity of money supply is 0.355223 and it is inelastic.
Finally in our conclusion we can say that the only the change of money supply can change
the price level and 1% change of money supply can change 0.35223% of price level which
we found from statistical method.

7|Page
6. Recommendations:

1. We should be careful to collect secondary data from authentic source. If we collect wrong
data, then the whole process might be wrong.
2. We should use another software such as mat lab along with Excel for perfect result.
3. There are many other reason for price hiking which are unable to measure by statistic. So,
taking financial decision based on only statistic theory could be wrong.

8|Page
 7. References:

 Unknown, 2015. Data Collection, Processing and Analysis, s.l.: Tartu Ulikool.

 Baki, A., 2014. Impact of Price Hike in Bangladesh, s.l.: Academia.

 BBS (2007), n.d. Bangladesh Bureau of 5tatistics, Statistic Division, Ministry of planning,
Bangladesh Government of People's Republic [Online]
Available at: www.bbs.gov.bd@datainde3@statXbangladesh.pdf /

 Craig H. Petersen, W. C. L., 2015. Managerial Economics. 4th ed. s.l.:Rahul Print.

 Muhammad Abdul Latif, 2. M. H., 2016. Impact of Price Hike on the Standard of Living of
Middle Income People: A Study on Sylhet City, Bangladesh, s.l.: s.n.

 Pettinger, T., 2017. Economics Help. [Online]

Available at: https://www.economicshelp.org/blog/749/economics/understanding-
exchange-rate/

 Salthouse, T. A., 2011. All data collection and analysis methods have limitations, Virginia:
PMC.

 SM Nasim Azad, M. M. H. R. P., 2012. Customer Perception, Price and Demand Analysis
of Supermarkets in Dhaka City. [Online]
Available at: https://www.banglajol.info/index.php/JBT/article/view/14516

9|Page
Appendix

Data collection and processing:

The Figure of data process and steps of regression in Excel –

Step 1: Collected data convert into LN data

Collected and Processed Data

Before converting into ln After converting into ln
Year Price Import Money Gross Price Import Money Gross
Level Price Supply Domestic Level Price Supply Domestic
Product Product
(GDP) (GDP)
1997 101.33 91.08 45.6905 1664.24 4.618343 4.511684 3.82189 7.417124
1998 103.96 106.57 50.6275 1752.85 4.644006 4.668786 3.924495 7.468997
1999 112.96 114.63 55.8691 1844.44 4.727034 4.741692 4.023011 7.519928
2000 120.94 125.54 63.0271 1934.37 4.795295 4.832591 4.143565 7.567536
2001 124.31 126.64 74.7624 2049.27 4.822778 4.841348 4.314315 7.625241
2002 126.72 136.17 87.1742 2157.35 4.84198 4.913904 4.467908 7.676638
2003 130.26 146.41 98.6161 2252.61 4.869532 4.986411 4.591235 7.719843
2004 135.97 157.76 113.9945 2370.95 4.912434 5.061075 4.73615 7.771046
2005 143.90 164.15 129.7212 2519.70 4.969119 5.100781 4.865388 7.831895
2006 153.24 169.96 151.4465 2669.74 5.032005 5.135563 5.020232 7.889736
2007 164.21 176.66 180.6742 2846.73 5.101146 5.174227 5.196695 7.953926
2008 176.04 183.09 211.5043 3029.73 5.170711 5.209978 5.354245 8.016229
2009 193.54 232.52 248.7949 3217.26 5.265484 5.448976 5.516629 8.076285
2010 206.43 248.33 296.4997 3401.97 5.329961 5.514759 5.692046 8.13211
2011 221.53 264.27 363.0311 3600.47 5.400567 5.576971 5.894489 8.18882

LNCoverted Formula"=ln(C4:C18)"

Fig 1: Collected Data for analysis

A- 1 -
Step 2: Click on “Data Analysis” button for select the regression for test

Fig 2: Select “Data Analysis” from data menu bar

Step 3: Find out regression option from analysis tools

Fig 3: Run the regression test on collected data

A- 2 -
Step 4: Input the dependent values of Y and the independent values of X in the dialog box, then
click on OK button

Fig 4: Input X and Y variables for regression

A- 3 -
Data Analysis:

There are three regression test run for data analysis from where we collected data for making
those table. The Excel regression test are given below:

Test 1: Price level is dependent variable and Import price, Money supply, and GDP are
independent

SUMMARY OUTPUT of Y = Price Level & X = Import Price, Money Supply, GDP
Regression
Statistics
Multiple R 0.993995842
R Square 0.988027735
Adjusted R
Square 0.984762571
Standard Error 0.030135485
Observations 15

ANOVA
Significance
Df SS MS F F
Regression 3 0.824407388 0.274802463 302.5967336 7.55661E-11
Residual 11 0.009989622 0.000908147
Total 14 0.83439701

Standard
Coefficients Error t Stat P-value Lower 95%
-
Intercept 1.126358661 4.988224252 0.225803533 0.82549484 9.852648892
-
Import Price 0.224087933 0.153193235 1.462779557 0.171505453 0.113088105
-
Money Supply 0.171581617 0.307011489 0.558876859 0.587442745 0.504146115
-
GDP 0.242681092 0.84191603 0.288248571 0.778515335 1.610363596

Fig 5: Test 1 include all the independent variables

A- 4 -
Test 2: Price level is dependent variable and Import price and Money supply are independent

SUMMARY OUTPUT of Y = Price Level & X = Import Price, Money Supply

Regression
Statistics
Multiple R 0.993950353
R Square 0.987937304
Adjusted R
Square 0.985926854
Standard Error 0.028961293
Observations 15

ANOVA
Significance
df SS MS F F
Regression 2 0.824331932 0.412165966 491.4012282 3.08082E-12
Residual 12 0.010065078 0.000838756
Total 14 0.83439701

Standard
Coefficients Error t Stat P-value Lower 95%
Intercept 2.558832146 0.414121891 6.178934759 4.7346E-05 1.656538057
Import Price 0.233404157 0.14391041 1.621871257 0.130792898 -0.08014969
Money Supply 0.257745288 0.067286552 3.830561659 0.002393126 0.111140484

Fig 6: Test 2 exclude GDP only from the independent variables

A- 5 -
Test 3: Price level is dependent variable and Money supply is independent

SUMMARY OUTPUT of Y = Price Level & X = Import Price, Money Supply, GDP
Regression
Statistics
Multiple R 0.99261931
R Square 0.985293094
Adjusted R
Square 0.984161793
Standard Error 0.03072383
Observations 15

ANOVA
Significance
df SS MS F F
Regression 1 0.822125611 0.822125611 870.9384612 2.68102E-13
Residual 13 0.012271399 0.000943954
Total 14 0.83439701

Standard
Coefficients Error t Stat P-value Lower 95%
Intercept 3.224281017 0.059572015 54.12408828 1.07526E-16 3.095583502
Money Supply 0.365222795 0.012375539 29.51166653 2.68102E-13 0.338487067

Fig 7: Test 3 include only Money supply from the independent variables

A- 6 -