Error Correction Exchange Rate Modeling For Bangladesh

Several error correction models are estimated for analyzing the nominal exchange rate dynamics of Bangladesh between the taka and the United States dollar using annual data. The theoretical frameworks utilized include balance of payments and the monetary construct. The bilateral taka / dollar exchange rate model based on the balance of payments approach exhibits better econometric and statistical traits than the model based on the monetary construct. Out-of-sample simulation indicates, however, that the balance of payments ARDL model does not generate very accurate forecasts for this bilateral exchange rate