An Open Economy Quarterly Projection Model for Sri Lanka
59 Pages Posted: 1 Aug 2018
Date Written: June 2018
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: Suggested Citation