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Forecasting Economic Indicators of Bangladesh using Vector Autoregressive (VAR) Model

Lakshmi Rani Kundu, Sharmin Islam, Most. Zannatul Ferdous, Md. Farhad Hossain, Partha Chakraborty

Abstract



VAR model is an economic model that is useful for the analysis of multivariate time series. This model is widely used for determining the brawny nature of monetary time series and forecasting. This study aimed to presage economic indicators of Bangladesh by the appropriate vector autoregressive model. Secondary data were collected from monthly economic trends book publications of the Statistics Department of Bangladesh bank, depicting monthly time series of the three economic indicators such as total exports, total imports, and exchange rate from January 2007 to January 2020. Appropriate Vector Autoregressive model with a maximum of 4 lags was selected based on some information criteria. The Granger causality analysis indicated that exports were not outright concerned with the exchange rate only the imports as well as there exists bi-directional causality between exports and imports. The empirical model also forecasts total exports, total imports, and the exchange rate of Bangladesh from February 2020 to November 2020 that will help policymakers to plan more appropriately to improve the balance of trade.

Keywords


Economic indicators, Forecasting, Model selection, Multivariate time series, VAR model.

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