The Double Edged Blade of Consumerism & the Impossible Trinity – Bangladesh

Abstract

This paper demonstrates how a change in monetary policy by lowering the interest rates can lead to a decline in savings in the short run. Almost perfect correlation coefficient exists between declined marginal savings and increased household desire to either invest or spend; hoarding proves to be minimal but there are limits to household investments. Corporate investment is also possibly affected by the new policy as consumerism and lower cost of capital encourages the firms to invest. Consumption also leads to indebtedness. However, the consumption patterns, capital flight and borrowing motives proves to be of alarming significance to the policy makers. In the long-run, monetary expansionary policy is forecasted to be ineffective.