Cover IMF Working Papers
Towards Inflation Targeting in Sri Lanka
Author: Ding Ding, Rahul Anand, and Mr. Shanaka J Peiris
Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 081
Language:
English
Publication Date:
01 Apr 2011
DOI:
https://doi.org/10.5089/9781455226078.001
ISBN:
9781455226078
ISSN:
1018-5941
Pages:
28
Keywords:
WP; headline inflation
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund