## Pass-Through of External Shocks to Inflation in Sri Lanka

_IMF Working Papers, March 1, 2008_

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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

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### 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).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/pass-through-of-external-shocks-to-inflation-in-sri-lanka-21837_