Calibrating an Energy Augmented Real Business Cycle: The Case of Bangladesh

Sakib B. Amin and Shaikh S. Ferdaus

We simulate 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 examine the model’s ability to describe the dynamic structure of the Bangladesh economy. To the best of our knowledge, this is the first study to incorporate energy price shocks in the Real Business Cycle (RBC) model in the context of Bangladesh. Through the use of Impulse Response Functions (IRFs) this paper reveals 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 for the case of Bangladesh.