Pass-Through of External Shocks to Inflation in Sri Lanka
IMF Working Papers, March 1, 2008
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- Pass-Through of External Shocks to Inflation in Sri Lanka
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Bibliographic details
- Authors: Nombulelo Braiton
- Published: March 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451869392.001
Summary and Main Findings
- Investigates pass-through of external shocks (exchange rate, oil price, and import price shocks) to inflation in Sri Lanka.
- Analysis finds low and incomplete pass-through of external shocks to consumer inflation.
- External shocks explain about 25 percent of the variation in consumer price inflation.
- Low and incomplete pass-through reflects a combination of factors including:
- the existence of administered prices,
- high content of food in the consumption basket,
- low persistence and volatility of the exchange rate.
- Implication: there is room for domestic policies in controlling inflation.
Methodology
- Empirical approach: vector autoregression (VAR) model.
- Model incorporates a distribution chain of pricing.
Key Quantitative Results and Statistics
- External shocks explain about 25 percent of the variation in consumer price inflation.
- Publication details and identifiers:
- Pages: 26
- Volume: 2008
- Issue: 078
- Series: Working Paper No. 2008/078
- Stock No: WPIEA2008078
- ISBN: 9781451869392
- ISSN: 1018-5941
- DOI: https://doi.org/10.5089/9781451869392.001
- Author and date:
- By Nombulelo Braiton
- March 1, 2008
Policy Implications and Recommendations
- Because pass-through from external shocks to consumer inflation is low and incomplete, domestic policies can play a meaningful role in controlling inflation.
- Policymakers should consider factors that reduce pass-through in designing inflation management strategies, including:
- administered price frameworks,
- the high weight of food in consumption baskets and related food price policies,
- measures addressing exchange rate persistence and volatility.
IMF Working Papers. Pass-Through of External Shocks to Inflation in Sri Lanka — Nombulelo Braiton (March 1, 2008).