Toward Inflation Targeting in Sri Lanka

29 Pages Posted: 19 Apr 2011

See all articles by Shanaka J. Peiris

Shanaka J. Peiris

International Monetary Fund (IMF)

Ding Ding

International Monetary Fund

Rahul Anand

International Monetary Fund (IMF)

Date Written: April 2011

Abstract

This paper develops a practical model-based forecasting and policy analysis system (FPAS) to support a transition to an inflation forecast targeting regime in Sri Lanka. The FPAS model provides a relatively good forecast for inflation and a framework to evaluate policy trade-offs. The model simulations suggest that an open-economy inflation targeting rule can reduce macroeconomic volatility and anchor inflationary expectations given the size and type of shocks faced by the economy. Sri Lanka could aim to target a broad inflation range initially due to its susceptibility supply-side shocks while enhancing exchange rate flexibility and strengthening the effectiveness of monetary policy in the transition to an inflation forecast targeting regime.

Keywords: Central banks, Forecasting models, Inflation targeting, Monetary policy, Sri Lanka

Suggested Citation

Peiris, Shanaka J. and Ding, Ding and Anand, Rahul, Toward Inflation Targeting in Sri Lanka (April 2011). IMF Working Papers, Vol. , pp. 1-28, 2011. Available at SSRN: https://ssrn.com/abstract=1814761

Shanaka J. Peiris (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ding Ding

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Rahul Anand

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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