UID:
edoccha_9958236101902883
Format:
1 online resource (43 p.)
ISBN:
1-4983-1468-6
,
1-4843-0208-7
Series Statement:
IMF Working Papers
Content:
In this paper we examine the channels through which innovations to policy variables— policy rates or monetary aggregates—affect such macroeconomic variables as output and inflation in Sri Lanka. The effectiveness of monetary policy instruments is judged through the prism of conventional policy channels (money/interest rate, bank lending, exchange rate and asset price channels) in VAR models. The timing and magnitude of these effects are assessed using impulse response functions, and through the pass-through coefficients from policy to money market and lending rates. Our results show that (i) the interest rate channel (money view) has the strongest Granger effect (helps predict) on output with a 0.6 percent decrease in output after the second quarter and a cumulative 0.5 percent decline within a three-year period in response to innovations in the policy rate; (ii) the contribution from the bank lending channel is statistically significant (adding 0.2 percentage point to the baseline effect of policy rates) in affecting both output and prices but with a lag of about five quarters for output and longer for prices; and (iii) the exchange rate and asset price channels are ineffective and do not have Granger effects on either output or prices.
Note:
Description based upon print version of record.
,
Cover; Contents; I. Background; II. Literature Review; III. Current Challenges; Figures; 1. Sri Lanka: Ratio of Bank Loans to GDP; 2. Sri Lanka: Selected Financial Indicators; 3. Sri Lanka: Banks' Liquid Asset Holdings; 4. Sri Lanka: Selected Financial Indicators; 5. Sri Lanka: Banks' Liabilities; Tables; 1a. Sri Lanka: Correlations Between Changes in Repo Rate and Changes in Money Market and Securities Returns; 1b. Sri Lanka: Correlations Between Changes in Repo Rate and Changes in Money Market and Securities Returns; 6. Sri Lanka: Repo and Prime Lending Rates
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2. Sri Lanka: Correlations Between Changes in the Money Market Rates and Changes in the Lending and Deposit Rates3. Sri Lanka: Impact of Policy and Money Market Rates on Long-term Domestic Rates; 7. Sri Lanka: Pass-through from Repo Rate to Money Market Rate; 8. Sri Lanka: Pass-through from Money Market to Prime Lending Rates; 9. Sri Lanka: Pass-through from Repo Rate to Lending-Deposit Spread; 10. Sri Lanka: Pass-through from Money Market Rate to Lending-Deposit Spread
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4. Selected Asian Countries: Correlations Between Changes in the Repo Rate and Changes in Money Market and Securities Returns5. Selected Asian Countries: Correlations Between Changes in the Money Market Rates and Changes in the Lending and Deposit Rates; IV. Data and Methodology; A. Data Inspection Strategy; B. Methodology; V. Baseline VAR and Channels of Monetary Policy Transmission; A. Interest Rate Channel (Money View); 6. Sri Lanka: Baseline Model; B. Bank Lending Channel (Component of the Credit View); 7. Sri Lanka: Credit Channel; 8. Sri Lanka: Credit Channel; C. Exchange Rate Channel
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D. Asset Price Channel9. Sri Lanka: Asset Price Channel; VI. More on the Channels of Monetary Policy Transmission; VII. VAR Model-Issue of Excess Liquidity, Output, and Inflation; VIII. Conclusions; 10. Sri Lanka: Expanded VAR Model; 11. Sri Lanka: Expanded VAR Model with 12-Month Treasury Bill Rate; Annex; I. Data Generation Process and Unit Root Test Results; II. Comparison with Previous Work; References
Additional Edition:
ISBN 1-4843-1166-3
Additional Edition:
ISBN 1-322-33331-9
Language:
English
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