An Open Economy Quarterly Projection Model for Sri Lanka
Author | : Chandranath Amarasekara |
Publisher | : International Monetary Fund |
Total Pages | : 59 |
Release | : 2018-06-25 |
ISBN-10 | : 9781484361511 |
ISBN-13 | : 1484361512 |
Rating | : 4/5 (11 Downloads) |
Book excerpt: 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.