An Open Economy Quarterly Projection Model for Sri Lanka

59 Pages Posted: 1 Aug 2018

See all articles by Chandranath Amarasekara

Chandranath Amarasekara

Central Bank of Sri Lanka

Rahul Anand

International Monetary Fund (IMF)

Kithsiri Ehelepola

Central Bank of Sri Lanka

Hemantha Ekanayake

Central Bank of Sri Lanka

Vishuddhi Jayawickrema

Central Bank of Sri Lanka

Sujeetha Jegajeevan

Central Bank of Sri Lanka

Csaba Kober

Central Bank of Sri Lanka

Tharindi Nugawela

Central Bank of Sri Lanka

Sergey Plotnikov

Central Bank of Sri Lanka

Adam Remo

International Monetary Fund (IMF)

Poongothai Venuganan

Central Bank of Sri Lanka

Rasika Yatigammana

Central Bank of Sri Lanka

Date Written: June 2018

Abstract

This study documents a semi-structural model developed for Sri Lanka. This model, extended with a fiscal sector block, is expected to serve as a core forecasting model in the process of the Central Bank of Sri Lanka's move towards flexible inflation targeting. The model includes a forward-looking endogenous interest rate and foreign exchange rate policy rules allowing for flexible change in policy behavior. It is a gap model that allows for simultaneous identification of business cycle position and long-term equilibrium. The model was first calibrated and then its data-fit was improved using Bayesian estimation technique with relatively tight priors.

Keywords: Monetary policy, Inflation targeting, Economic forecasting, Fiscal projections, Open economies, Econometric models, Quarterly Projection Model, Forecasting and Policy Analysis System, Flexible Inflation Targeting, General, Forecasting and Simulation, Monetary Policy (Targets, Instruments, and Effects)

JEL Classification: C15, C50, E17, E42, E47, E52

Suggested Citation

Amarasekara, Chandranath and Anand, Rahul and Ehelepola, Kithsiri and Ekanayake, Hemantha and Jayawickrema, Vishuddhi and Jegajeevan, Sujeetha and Kober, Csaba and Nugawela, Tharindi and Plotnikov, Sergey and Remo, Adam and Venuganan, Poongothai and Yatigammana, Rasika, An Open Economy Quarterly Projection Model for Sri Lanka (June 2018). IMF Working Paper No. 18/149. Available at SSRN: https://ssrn.com/abstract=3221259

Chandranath Amarasekara (Contact Author)

Central Bank of Sri Lanka ( email )

30, Janadhipathi Mw.
Colombo 01
Sri Lanka

Rahul Anand

International Monetary Fund (IMF) ( email )

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

Kithsiri Ehelepola

Central Bank of Sri Lanka ( email )

30, Janadhipathi Mw.
Colombo 01
Sri Lanka

Hemantha Ekanayake

Central Bank of Sri Lanka ( email )

30, Janadhipathi Mw.
Colombo 01
Sri Lanka

Vishuddhi Jayawickrema

Central Bank of Sri Lanka ( email )

30, Janadhipathi Mw.
Colombo 01
Sri Lanka

Sujeetha Jegajeevan

Central Bank of Sri Lanka ( email )

30, Janadhipathi Mw.
Colombo 01
Sri Lanka

Csaba Kober

Central Bank of Sri Lanka ( email )

30, Janadhipathi Mw.
Colombo 01
Sri Lanka

Tharindi Nugawela

Central Bank of Sri Lanka ( email )

30, Janadhipathi Mw.
Colombo 01
Sri Lanka

Sergey Plotnikov

Central Bank of Sri Lanka ( email )

30, Janadhipathi Mw.
Colombo 01
Sri Lanka

Adam Remo

International Monetary Fund (IMF) ( email )

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

Poongothai Venuganan

Central Bank of Sri Lanka ( email )

30, Janadhipathi Mw.
Colombo 01
Sri Lanka

Rasika Yatigammana

Central Bank of Sri Lanka ( email )

30, Janadhipathi Mw.
Colombo 01
Sri Lanka

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