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External shocks and monetary policy in Sri Lanka

Crawford School of Public Policy | Centre for Applied Macroeconomic Analysis

Event details

Seminar

Date & time

Thursday 12 May 2016
11.00am–12.00pm

Venue

Seminar Room 2, Level 1, JG Crawford Building 132, Lennox Crossing, ANU

Speaker

Yashodha Warunie Senadheera, PhD student, Centre for Applied Macroeconomic Analysis.

Contacts

Rossana Bastos
6125 8108

In this seminar Yashodha will provide an overview of her recent paper, External Shocks and Monetary Policy in Sri Lanka.

External shocks transmitted through trade and financial market linkages have a considerable welfare effect on developing and emerging economies. The monetary policy regime of a country plays a vital role in minimising the social welfare losses arising from these external shocks. This seminar investigates the welfare implications of six alternative monetary policy rules in a small open economy, namely Sri Lanka, using a calibrated DSGE model with nominal rigidities, delayed exchange rate pass-through and financial frictions. The model was solved numerically by Yashodha taking second approximation of the full set of model equations. The author found that domestic goods inflation targeting minimises the welfare losses caused by foreign interest rate and foreign output shocks. The CPI inflation targeting rule comes in at the second place in welfare ranking closely followed by the monetary aggregate targeting rule. Social welfare is lowest under the strict exchange rate targeting rule when the economy is affected by both types of external shocks.

Yashodha Warunie Senadheera is a third year PhD student at Crawford School. She completed her Masters and Graduate Diploma in International and Development Economics at ANU in 2013. She is an Associate Member of the Chartered Institute of Management Accountants, UK and has worked as a fund manager at the Central Bank of Sri Lanka. Her research interest is on monetary economics.

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.

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