An Open Economy Quarterly Projection Model for Sri Lanka

IMF Working Papers, June 25, 2018

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An Open Economy Quarterly Projection Model for Sri Lanka

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Bibliographic details

• Authors: Chandranath Amarasekara, Rahul Anand, Kithsiri Ehelepola, Hemantha Ekanayake, Vishuddhi Jayawickrema, Sujeetha Jegajeevan, Csaba Kober, Tharindi Nugawela, Sergey Plotnikov, Adam Remo, Poongothai Venuganan, Rasika Yatigammana
• Published: June 25, 2018
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484361511.001

Model overview

• Documents a semi-structural model developed for Sri Lanka.
• Extended with a fiscal sector block to serve as a core forecasting model in the Central Bank of Sri Lanka’s move towards flexible inflation targeting.
• Gap model that allows for simultaneous identification of business cycle position and long-term equilibrium.
• Includes forward-looking endogenous interest rate and foreign exchange rate policy rules allowing for flexible change in policy behavior.

Estimation and calibration

• Model was first calibrated.
• Data-fit was improved using Bayesian estimation technique with relatively tight priors.

Intended use and policy relevance

• Expected to serve as a core forecasting model supporting the transition to flexible inflation targeting.
• Supports analysis of monetary policy through:
  • Forward-looking endogenous nominal interest rate rule.
  • Forward-looking endogenous foreign exchange rate policy rule.
• Facilitates identification of excess demand and output gap dynamics in an open economy setting.

Key thematic coverage (as stated in source)

• Economic forecasting
• Exchange rates; Foreign exchange
• Inflation; Inflation targeting; Inflation expectation; Headline inflation; Sri Lankan inflation
• Monetary policy; Nominal interest rate
• Output gap; Prices; Real exchange rates
• Administered energy inflation; Energy inflation; Transport inflation; World oil price dynamics
• Forecasting and Policy Analysis System; Flexible Inflation Targeting; Quarterly Projection Model; Open economy; Sri Lankan economy

Source: An Open Economy Quarterly Projection Model for Sri Lanka (IMF Working Papers).

Content in this bundle

• An Open Economy Quarterly Projection Model for Sri Lanka, WP/18/149, June 2018
  • An Open Economy Quarterly Projection Model for Sri Lanka, WP/18/149, June 2018 (Markdown version)
  • An Open Economy Quarterly Projection Model for Sri Lanka, WP/18/149, June 2018 (PDF)