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Monetary policy and inflation–output variability in Sri Lanka: Lessons for developing economies

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  • Kesavarajah Mayandy
  • Paul Middleditch

Abstract

This paper considers the impact of monetary policy on the inflation–output variability trade‐off for Sri Lanka and in doing so, draws lessons for the formulation of early‐stage monetary policy in developing economies. We examine how this trade‐off has changed across different monetary policy episodes, and investigate the persistence of economic shocks on the variability of inflation and output. After exploring the contribution of monetary policy towards macroeconomic performance more generally, we use the experience of Sri Lanka to suggest that more recently formed central banks in developing economies should focus on inflation variability, especially where the impact of demand and supply shocks is less persistent.

Suggested Citation

  • Kesavarajah Mayandy & Paul Middleditch, 2022. "Monetary policy and inflation–output variability in Sri Lanka: Lessons for developing economies," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 259-279, February.
    • Handle: RePEc:bla:rdevec:v:26:y:2022:i:1:p:259-279
    DOI: 10.1111/rode.12823
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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