2011年-IMF国际货币组织全球_Towards_Inflation_Targeting_in_Sri_Lanka_29页_1mb

Summary of "Toward Inflation Targeting in Sri Lanka"

Core Content

This IMF Working Paper explores the feasibility of transitioning Sri Lanka to an inflation forecast targeting (IFT) regime. It presents a model-based forecasting and policy analysis system (FPAS) that supports the implementation of IFT by integrating Sri Lanka-specific factors into a standard New Keynesian framework. The paper also discusses the role of exchange rates, monetary transmission mechanisms, and the potential for counter-cyclical fiscal policy in shaping the effectiveness of monetary policy under IFT.

Main Points

• Monetary Policy Framework: Sri Lanka currently follows a monetary targeting framework, where the central bank focuses on reserve money supply and demand. However, this approach is being reconsidered due to the need for more effective monetary policy in the context of inflation targeting.

• Model Structure: The paper uses a small New Keynesian macroeconomic model with rational expectations, incorporating:

  • Aggregate demand (IS curve)
  • Inflation dynamics (New Keynesian Phillips curve)
  • Exchange rate behavior (uncovered interest parity)
  • Monetary policy rule (based on output gap, inflation expectations, and exchange rate)

• Sri Lanka-Specific Extensions:

  • Fiscal balance gap is included in the output gap equation to account for fiscal policy effects.
  • Bank lending conditions are integrated to reflect the role of financial linkages in monetary transmission.
  • A pass-through coefficient for oil prices is introduced to capture the impact of international oil price changes on domestic fuel prices.

• Bayesian Estimation: The model is estimated using Bayesian techniques, which allow for the incorporation of prior information and provide more stable results in the presence of limited data. The method also enables the assessment of parameter uncertainty and model fit.

• Parameter Choices:

  • The output gap equation includes parameters like $\beta_{lag}$, $\beta_{ld}$, $\beta_{RRgap}$, $\beta_{zgap}$, and $\beta_{RWygap}$, reflecting the inertia, effectiveness of monetary policy, and exchange rate sensitivity in the economy.
  • Inflation equation parameters ($\alpha_{\pi dd}$, $\alpha_{ygap}$, $\alpha_{zgap}$, $\alpha_o$, and $\alpha_{olag}$) indicate the importance of expectations, output, exchange rate, and oil prices in inflation dynamics.
  • Monetary policy rule parameters ($\gamma_{RS lag}$, $\gamma_{\pi}$, $\gamma_{ygap}$, and $\gamma_{zgap}$) reflect the central bank's response to inflation, output, and exchange rate movements.

Key Findings

• The FPAS model provides a good forecast of inflation and output, and it offers a framework to evaluate policy trade-offs.
• The model suggests that inflation targeting can help anchor inflationary expectations and reduce macroeconomic volatility, especially in the context of external and supply-side shocks.
• Sri Lanka should consider targeting a broad inflation range initially due to its susceptibility to supply-side shocks.
• The exchange rate plays a crucial role in the IFT regime, and enhancing exchange rate flexibility could strengthen monetary policy effectiveness.
• The financial accelerator effect, through bank lending conditions, is an important channel for monetary transmission in Sri Lanka.
• The fiscal balance and public debt are also integrated into the model to assess the impact of fiscal policy on output and inflation.
• The sacrifice ratio is somewhat higher than expected, indicating that achieving price stability may require a greater adjustment in output.
• The pass-through of oil prices to domestic prices is relatively low, given the infrequent adjustment of fuel prices in Sri Lanka.
• The Taylor rule is adjusted in the model, with a higher weight on the output gap and lower weight on the inflation gap, and a stronger smoothing coefficient than in the prior assumptions.

Policy Recommendations

• Transition to a flexible inflation targeting regime is feasible and beneficial for Sri Lanka.
• The central bank should focus more on inflation expectations and less on monetary aggregates.
• Enhance exchange rate flexibility to improve the effectiveness of monetary policy.
• Integrate macro-financial linkages into the policy framework to better capture the role of credit conditions and financial stability.
• Implement a fiscal rule to ensure counter-cyclical fiscal policy and stable public debt accumulation.
• Monitor and adjust the inflation target based on the evolving economic and financial landscape, particularly in the context of external shocks and supply-side volatility.

Conclusion

The paper concludes that a model-based FPAS system is a valuable tool for supporting the transition to inflation targeting in Sri Lanka. It highlights the importance of incorporating Sri Lanka-specific features into the model to ensure its relevance and accuracy. The model simulations suggest that a targeting regime can help stabilize inflation and reduce macroeconomic volatility, especially in the face of various types of shocks. The authors recommend a gradual and flexible approach to IFT, emphasizing the need for policy coherence and institutional development in the transition process.