Pass-Through of External Shocks to Inflation in Sri Lanka

Author/Editor:

Nombulelo Braiton

Publication Date:

March 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper investigates pass-through of external shocks (exchange rate, oil price, and import price shocks) to inflation in Sri Lanka. The analysis is based on a vector autoregression (VAR) model that incorporates a distribution chain of pricing. The paper finds low and incomplete pass-through of external shocks to consumer inflation, reflecting a combination of factors including the existence of administered prices, high content of food in the consumption basket, and low persistence and volatility of the exchange rate. External shocks explain about 25 percent of the variation in consumer price inflation, reflecting room for domestic policies in controlling inflation.

Series:

Working Paper No. 08/78

Subject:

English

Publication Date:

March 1, 2008

ISBN/ISSN:

9781451869392/1018-5941

Stock No:

WPIEA2008078

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

26

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