Towards Inflation Targeting in Sri Lanka
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Summary:
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.
Series:
Working Paper No. 2011/081
Subject:
Exchange rates Inflation Inflation targeting Output gap Real exchange rates
English
Publication Date:
April 1, 2011
ISBN/ISSN:
9781455226078/1018-5941
Stock No:
WPIEA2011081
Pages:
28
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