Volume 5 Issue 2 July-December, 2016 BBTA Journal Thoughts on Banking and Finance Volume-5, Issue-2 July-December, 2016 Bangladesh Bank Training Academy Mirpur-2, Dhaka-1216 BBTA Journal Thoughts on Banking and Finance (A Journal of Bangladesh Bank Training Academy) Volume-5, Issue-2 July-December, 2016 ISSN - 2517-9918 @Bangladesh Bank Training Academy, Mirpur-2, Dhaka-1216 For all sorts of correspondence : The Executive Editor BBTA Journal "Thoughts on Banking and Finance" Research and Publications Wing Bangladesh Bank Training Academy (BBTA) Bangladesh Bank, Head Office, Mirpur-2, Dhaka-1216, Bangladesh Phone : 880-2-9028248, Fax : 880-2-8032110 E-mail : [email protected] Price : Inland BDT 200.00 Foreign US$ 3.00 BBTA Journal : Thoughts on Banking and Finance 02 Volume-5, Issue-2, July-December, 2016 Editorial Advisory Board Fazle Kabir Governor Chairman Abu Hena Mohd. Razee Hassan Deputy Governor Member Shitangshu Kumar Sur Chowdhury Deputy Governor Member S.M. Moniruzzaman Deputy Governor Member Laila Bilkis Ara Executive Director, BBTA Member-Secretary Editorial Board Shitangshu Kumar Sur Chowdhury Deputy Governor Chairman Dr. Md. Akhtaruzzaman Economic Adviser Member Laila Bilkis Ara Executive Director, BBTA Member Md. Mostafizur Rahman Sarder General Manager, BBTA Member-Secretary Executive Editor Md. Mostafizur Rahman Sarder Associate Members of Journal Management Mohammed Mahinur Alam Deputy General Manager Tania Mustafiz Joint Director Mohammad Amiruzzaman Mia Deputy Director Md. Razaul Karim Maintenance Engineer (DD) Israt Jahan Deputy Director Note : The Editorial Advisory Board, Editorial Board, Executive Editor, and Associate Members of Journal Management committee do not bear any responsibility for the views expressed in the papers by the contributors. BBTA Journal : Thoughts on Banking and Finance Volume-5, Issue-2, July-December, 2016 03 Contents Editorial Note 07-08 Modeling and Estimating Volatility in the Dhaka Stock Market 09-23 - Luthfe Ara Begum - Nasrin Sultana - Md. Shamim Mondal Bank Credit and Economic Growth Nexus: Bangladesh Perspective 24-39 - Bishnu Pada Biswas - Mohammad Masuduzzaman Causality between Budget Deficit and Interest Rate: 40-49 The Case of Bangladesh - Mohammad Amzad Hossain Linking Waste Management with Banking Sector in Bangladesh: 50-71 Status and Perception - Tahmina Rahman Real or Nominal Shock- What Drives the Exchange Rate 72-89 Movements in Bangladesh? - Md. Nazimul Arif Sarker - Md. Sadrul Hasan - Ataur Rahaman Dynamics of Interest Rate Pass-through in Bangladesh 90-113 An Econometric investigation for 2003 to 2015 - Mohammad Abul Kashem Integrated Marketing Strategy and Development of 114-129 Tourism Sectors: A Case of Bangladesh - Shishir Reza Call for Research Papers 130 Introduction to Bangladesh Bank Training Academy (BBTA) 133 BBTA Journal : Thoughts on Banking and Finance Volume-5, Issue-2, July-December, 2016 05 Editorial Note BBTA journal from its inception has successfully covered the research articles based upon Central Banking, Finance, Economics and related other areas. The current volume of the "BBTA journal: Thoughts on Banking and Finance" covers a broad spectrum of macroeconomic and financial issues that are most substantial to policymakers as well as researchers and academicians. Topics included in this issue are: modeling and estimating volatility in the Dhaka Stock Market, bank credit and economic growth nexus: Bangladesh perspective, causality between budget deficit and interest rate: the case of Bangladesh, linking waste management with banking sector in Bangladesh: status and perception, real or nominal Shock- what drives the exchange rate movements in Bangladesh? dynamics of interest rate pass-through in Bangladesh: an econometric investigation for 2003 to 2015, and integrated marketing strategy and development of tourism sectors: a case of Bangladesh. Empirical examination of relevant theories on these issues is expected to provide valuable insights into the way policy makers think and make decisions. This issue also opens new avenues for scientific discourses and offers a concrete look at how these insights apply to development policy. The first paper observed that financial market volatility has a wider impact on financial regulation, monetary policy and macro economy. The ARCH and GARCH models are used to estimate the volatility. Results show that volatility in the Dhaka Stock market depends on the past shock in the residual square and the past shock in the variance. The paper also highlighted some stylized facts in such DSE as volatility clustering, fat tails, persistence of volatility and mean that reverts the series under analysis. The findings of the study have useful implications for the regulator and policy makers in the Dhaka stock market. The second paper delves into the impact of bank credit to the private sector on economic growth in Bangladesh from supply-side perspectives. The study has applied Johansen co-integration approach and Error Correction Model using the time series data for the period of 1980-2015. Estimation found a long run positive correlation between real private sector credits and real GDP. In the short run, real GDP adjusts towards the equilibrium path once the system is shocked. Hence, private sector credit should be considered carefully and given priority to productive sectors as unnecessary or unproductive credit to private sector not worthy to play active role to accelerate output growth. The third paper inquire into the dynamic linkage between the budget deficit and interest rate in Bangladesh over a long period of time (1974-2014) by applying co-integration, error correction models and Granger causality tests. It is evident that the data series are integrated of order one. Then Johansen-Juselius technique established that the variables considered are co-integrated, implying that there is a stable long run relationship between BBTA Journal : Thoughts on Banking and Finance Volume-5, Issue-2, July-December, 2016 07 the two. The estimated error correction model reflects that the impact of budget deficit on interest rate is not instantaneous. The error correction model also manifests bidirectional causality between the variables, which is also supported by the Granger causality test. The fourth paper focused that by ensuring proper waste management, it is possible to transform a large volume of waste into resources and produce remarkable positive impact on environment, operating cost and business income apart from ensuring employment. The study maps out that current status of banks in Bangladesh have received an appreciable attention in linking waste management till date. The fifth paper investigates into the primary elements responsible for exchange rate movements of the US dollar against Bangladeshi Taka. The dynamic effects of real and nominal shocks are scrutinized through conducting a structural vector auto regression (SVAR) model of real and nominal exchange rates with the assumption of the long-run neutrality restriction of nominal shocks on real exchange rate.The authors decomposed exchange rate movements into two components, real and nominal factors that lead to exchange rate variation.This empirical analysis demonstrates that the effect of a real shock on the real and nominal exchange rate is of a persistent nature, resulting in a long-run real appreciation and the effect of a nominal shock on the nominal exchange rate reveals that nominal shock takes around five months to maintain negative direction (depreciation) in the nominal exchange rate in Bangladesh. The sixth article employs vector Error correction models to examine the dynamics of the interest rate pass-through mechanism for Bangladesh, by formulating and using an independent variable 'weighted average policy rate' and lending rate, deposit rate and call money rate as dependent variables representing the lending, deposit and money market channels, respectively. The paper finds that that there is a symmetric, incomplete and very sluggish pass-through in Bangladesh for all lending, deposit and money market channels. Analysis also observed the greatest impact on the lending rate channel (40 percent) in short-run, while the adjustment speed is very slow in all channels. The study observes weak interest rate pass-though in Bangladesh is due to non-reliance of Bangladesh Bank on interest rate instrument for implementation of monetary policy. Finally, I would like to convey my heart-felt thanks and sincere gratitude to authors, reviewers, Editorial Advisory Board, and the members of the Editorial Board of BBTA Journal. Our efforts will be fruitful provided the articles published in this issue prove to be useful to readers. We appreciate constructive criticism and thoughtful feedback for further improvement of the Journal in future. Md.Mostafizur Rahman Sarder General Manager Executive Editor BBTA Journal: Thoughts on Banking and Finance BBTA Journal : Thoughts on Banking and Finance 08 Volume-5, Issue-2, July-December, 2016 Volume-5, Issue-2, July-December, 2016 PP. 09-23 Modeling and Estimating Volatility in the Dhaka Stock Market Luthfe Ara Begum* Nasrin Sultana Md. Shamim Mondal Abstract Volatility in the stock prices behavior is a normal phenomenon. This is a key element for pricing financial instruments. Financial market volatility also has a wider impact on financial regulation, monetary policy and the macro economy. Study use, daily closing prices data of “DSEX” Broad Index during January 28, 2013 to December 31, 2015. The ARCH and