Posted

April 14, 2011 04:42:51 AM

Date

2011-04

Author

Anand, Rahul ; Ding, Ding ; Peiris, Shanaka J.

Affiliation

APD, IMF

Title

Toward Inflation Targeting in Sri Lanka

Summary /
Abstract

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.

Keywords

Inflation Targeting, Monetary Policy, Bayesian Estimation

URL

http://www.imf.org/external/pubs/ft/wp/2011/wp1181.pdf

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