An Open Economy Quarterly Projection Model for Sri Lanka

Chandranath Amarasekara, Rahul Anand, Kithsiri Ehelepola, Hemantha Ekanayake, Vishuddhi Jayawickrema, Sujeetha Jegajeevan, Csaba Kober, Tharindi Nugawela, Sergey Plotnikov, Adam Remo, Poongothai Venuganan and Rasika Yatigammana

No 2018/149, IMF Working Papers from International Monetary Fund

Abstract: This study documents a semi-structural model developed for Sri Lanka. This model, extended with a fiscal sector block, is expected to serve as a core forecasting model in the process of the Central Bank of Sri Lanka’s move towards flexible inflation targeting. The model includes a forward-looking endogenous interest rate and foreign exchange rate policy rules allowing for flexible change in policy behavior. It is a gap model that allows for simultaneous identification of business cycle position and long-term equilibrium. The model was first calibrated and then its data-fit was improved using Bayesian estimation technique with relatively tight priors.

Keywords: WP; monetary policy; exchange rate; Sri Lanka; Quarterly Projection Model; Forecasting and Policy Analysis System; Flexible Inflation Targeting; nominal interest rate; excess demand; rule equation; open economy; inflation expectation; Sri Lankan economy; administered energy inflation; transport inflation; world oil price dynamics; energy inflation; headline inflation; Sri Lankan inflation; Inflation; Exchange rates; Real exchange rates; Inflation targeting; Global (search for similar items in EconPapers)
Pages: 59
Date: 2018-06-25
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Citations: View citations in EconPapers (4)

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