Inflation Dynamics in Sri Lanka: An Empirical Analysis

Kulatunge, Sanduni

doi:10.4038/ss.v45i1-2.4696

Cited by 14 publications

(17 citation statements)

References 19 publications

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“…Several theoretical and empirical studies have shown inflation being influenced by both demand- and supply-side factors (Bandara, 1996; Colombage, 2005; Cooray, 2008; Deyshappriya, 2014; Jayawardena & Jayasinghe, 2016; Kulatunge, 2012; Nicholas, 1993; Ratnasiri, 2009; Rupananda, 1994; Weerasekara, 1992). Furthermore, the literature on inflation has discussed, inter alia , inflation persistence across exchange rate regimes (Harischandra, 2007), the magnitude of pass-through rates (Wimalasuriya, 2007), monetary policy impact on growth and inflation (Amarasekara, 2008), inflation–unemployment trade-off (Amarasekara & Bratsiotis, 2015), inflation–output trade-off (Kesavarajah & Middleditch, 2019) and the contribution of oil price (Perera, 2005) and other factors to the inflation in Sri Lanka (De Silva, 2017).…”

Section: Inflation and Foreign Reserves: Brief Review Of The Literaturementioning

confidence: 99%

“…The ECT defines how quickly each variable’s deviation in the long-run equation is corrected gradually towards the equilibrium level through a series of partial short-run adjustments (Chaudhry et al, 2011; Kulatunge, 2012). Considering the inflation–reserves nexus, the ECT for CBR depicts that 0.5% of the long-run adjustment of CCPI is envisaged from the partial short-run adjustment of CBR every month.…”

Section: Data Analysis and Empirical Findingsmentioning

confidence: 99%

“…Giving heed to Kulatunge’s (2012) and Ratnasiri’s (2009) inclusion of the exchange rate as an inflation determinant, the article extends the model to include EXR. However, as seen in panel II of Table 3 and Table 5, the results were not conclusive when the robustness and diagnostic tests were carried out for the extended model.…”

Section: Data Analysis and Empirical Findingsmentioning

confidence: 99%

“…This study is a first for Sri Lanka, which attempts to bridge an important gap in identifying foreign reserves accumulation as a policy-driven factor that affects inflation in Sri Lanka. Previous empirical studies have focused on identifying the cost push–demand pull determinants of inflation in Sri Lanka (Deyshappriya, 2014; Kulatunge, 2012; Ratnasiri, 2009). However, surprisingly, these studies have not considered the influence of accumulated foreign reserves on inflation.…”

Section: Introductionmentioning

confidence: 99%

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The Nexus Of Foreign Reserves, Exchange Rate And Inflation: Recent Empirical Evidence From Sri Lanka

Ariyasinghe¹,

Cooray

2021

South Asia Economic Journal

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The conventional mandates of the central banks on meeting stability objectives and maintaining a growth-maximizing inflation rate have come under some criticism since the global financial crises. Maintaining adequate foreign reserves is seen as a viable solution to foreign exchange liquidity needs during crisis periods. Since the end of 2011, many Asian economies, including China and Japan, led from the forefront in central bank-led reserves build-up. However, reserves build-up remains challenging and sensitive for small open economies. Such policies help create ‘risk-neutral’ buffers for monetary and fiscal authorities to absorb transitory current account shocks and foreign exchange stress to smoothen the balance of payments. This study is motivated by the importance of identifying the inflation–foreign reserves nexus that may affect inflation in a manner counterproductive to the central bank mandate of maintaining price stability. It probes the debate of the sustainability of reserves build-up in the long and the short term. The outcome of the study poses several vital questions for fiscal and monetary policymakers concerning their respective mandates. The reserves–inflation nexus and its magnitude is determined using monthly data spanning two decades, through engaging an autoregressive distributed lag (ARDL) model and relevant bounds-testing techniques proposed by Pesaran et al. The vector autoregression (VAR), error correction and Johansen cointegration methods supplement the robustness checks. Exchange rate is introduced to enrich the discussion on the reserves–inflation nexus and shows a cointegration relationship in the long run. The study provides an insight into the influence of exchange rate on reserves and inflation. The variance decomposition shows the presence of a lukewarm response from foreign reserves and exchange rate on inflation. Policymakers concerned with inflationary expectations in the medium-to-long term need to consider these signals, as reserves build-up is one of the important policy-driven objectives for a number of economies.

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Section: Inflation and Foreign Reserves: Brief Review Of The Literaturementioning

confidence: 99%

Section: Data Analysis and Empirical Findingsmentioning

confidence: 99%

Section: Data Analysis and Empirical Findingsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The Nexus Of Foreign Reserves, Exchange Rate And Inflation: Recent Empirical Evidence From Sri Lanka

Ariyasinghe¹,

Cooray

2021

South Asia Economic Journal

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“…Generally, Colombo consumer price index (CCPI), wholesale price index (WPI) and gross domestic product deflator (GDPD) are the three major indicators used to measure the changes in the prices in Sri Lanka. According to Kulatunge (2017), CCPI is the official CoL index in Sri Lanka. Furthermore, it says that, CCPI covers a large number of items and is heavily weighted to food items which include 41% of the index.…”

Section: Introductionmentioning

confidence: 99%

Ranking and grouping of the districts of Sri Lanka based on the expenses of households: A multivariate analysis

Gnanapragasam

2020

Ruhuna J. Sci.

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Sri Lanka has twenty-five districts administrated under nine provinces. The cost of living (CoL) diverges among the districts in Sri Lanka like in many parts of the world. Ranking and grouping based on household expenses is useful in decision making by stakeholders. Principal component analysis and cluster analysis are used for ranking and grouping the districts, respectively, based on the expenses of households in Sri Lanka. Sri Lankans spend more for non-food items than food items, particularly for housing and transport, and therefore non-food items are the most influencing factor to decide the CoL in the country. It is concluded that Colombo district has the highest CoL, followed by Gampaha and Kalutara, whereas Kilinochchi and Mullaitivu districts have the least CoL in Sri Lanka. Districts with moderately high CoL were also identified. These classifications will facilitate investors on decision making and also help people to decide which part of the country will be suitable to settle depending on their income and the CoL in districts. Moreover, this grouping will provide some information to policy makers when planning infrastructure development in the country, and it may also provide a direction to use a new index to measure CoL in Sri Lanka.

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Factors Influencing Inflationary Condition in Sri Lanka: Orthodox Streamlining of Influential Factors

Ediriweera

Deshika

2021

Critical Perspectives on Emerging Economies

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Inflation Dynamics in Sri Lanka: An Empirical Analysis

Abstract: This paper examines the dynamics of inflation in Sri Lanka

Cited by 14 publications

References 19 publications

The Nexus Of Foreign Reserves, Exchange Rate And Inflation: Recent Empirical Evidence From Sri Lanka

The Nexus Of Foreign Reserves, Exchange Rate And Inflation: Recent Empirical Evidence From Sri Lanka

Ranking and grouping of the districts of Sri Lanka based on the expenses of households: A multivariate analysis

Factors Influencing Inflationary Condition in Sri Lanka: Orthodox Streamlining of Influential Factors

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