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Date of Award

1990

Degree Type

Thesis

Degree Name

Doctor of Philosophy (PhD)

Department

Economics / Economic Policy

Supervisor

A.A. Kubursi

Abstract

A large number of studies of price behaviour treat the price variable as a single aggregate variable. Various sectoral prices exhibit different trends and have different implications for the economic agents of an economy. In this study a disaggregated econometric model is formulated to study the problem of price behaviour in a developing country, Bangladesh. The main purpose of this study is to identify the important determinants of sectoral prices. One interesting aspect of this study is its emphasis on the supply side. This is in sharp contrast with a large number of macroeconometric models for developing countries which derive their basic framework from Keynesian-type demand determined models. A distinction is made between the agricultural and the non-agricultural sectors. At the output level, a distinction is made between food, jute, jute manufactures, non-jute manufactures and services. The labour market in the agricultural sector has been treated separately from that of the manufacturing sector. The equation regarding supply of credit to the private sector is developed in the model of the financial sector. The complete model consists of forty five equations including twenty two stochastic equations. Since the model is fairly large, various blocks of equations are estimated independently. The structural equations belonging to the sectoral submodels, which form blocks of simultaneous equations, are estimated using two stage least squares. The reduced form equations for these blocks are derived and identification exercises are carried out to check for identifiability of the structural parameters from the reduced form estimates. The reduced form equations show the nature of the constraints imposed on the reduced form coefficients by the structure of the model. The reduced form equations are estimated using the non-linear least squares estimation technique. The equations forming recursive blocks have been estimated using ordinary least squares. The qualitative characteristics of the model are examined by conducting simulation experiments. Included among the simulations performed are experiments to study the impacts of fiscal and monetary policies, a lower rate of growth of population, a Hicks-neutral technical change in the production of food, and higher foreign aid. The estimation and simulation results suggest that the supply response to price changes is very low, especially in the food producing sector. Rigidity in food supply, coupled with a growing population and food demand, have contributed substantially to inflation in Bangladesh. Technical change in the production of food, although increasing the cost of living index, increases per capita real disposable income. The study also provides evidence in support of the view that the structuralist and monetarist positions on inflation in developing countries are complementary rather than being competitive.

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