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Pass-Through of External Shocks to Inflation in Sri Lanka

Author/Editor: Duma, Nombulelo
Authorized for Distribution: March 1, 2008
Electronic Access: Free Full Text (PDF file size is 477KB)
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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(s): External shocks | Sri Lanka | Inflation | Oil prices | Exchange rates | Consumer prices | Economic models
Author's keyword(s): pass-through | exchange rate | oil prices | vector autoregression | Sri Lanka
 
English  
    Published:   March 1, 2008        
            Format:   Paper
    Stock No:   WPIEA2008078   Pages:   26
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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