Proceedings of 13th Asian Business Research Conference

Proceedings of 13th Asian Business Research Conference
26 - 27 December, 2015, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-93-1
Calibrating an Energy Augmented Real Business Cycle (RBC)
Model for the Economy of Bangladesh
Sakib B. Amin and Shaikh S. Ferdaus
Recognising the features and properties of business cycles is of particular
significance for developing countries such as Bangladesh. A comprehensive
understanding of the fluctuations in economic activity and their causes is
essential not only for the policy makers, but also for the market participants.
With increasing emphasis on mechanisation and technology in the
production process, shocks in energy prices have been often identified as a
source of macroeconomic fluctuation (McCallum, 1989). To the best of our
knowledge, this is the first study to incorporate energy shocks in the real
business cycle model in the context of Bangladesh. This paper simulates an
energy augmented RBC model for Bangladesh, characterised by shocks to
the Solow residual as well as energy price. The model in this paper is
calibrated using annual data of 1980-2010 to replicate long run results and
evaluates the extent to which fluctuations of key economic variables like
investment, consumption and output are explicated by shocks to factor
productivity and energy prices. Furthermore, the paper uses Impulse
Response Function (IRF) to examine the model’s ability to describe the
dynamic structure of Bangladesh economy. The results of this paper reveal
that while the impact of an upward shock to factor productivity on all key
endogenous variables is in the right direction, an upward shock in energy
prices has an adverse impact on the key endogenous variables namely:
investment, consumption and output, for the case of Bangladesh.
Field of Research: Economics
Dr. Sakib B. Amin, Assistant Professor & Corresponding Author, Department of Economics, North South
University, Email: [email protected]
Mr. Shaikh S. Ferdaus, Lecturer, Department of Mathematics, Scholastica, Bangladesh,
Email: [email protected]