Monetary Policy and Inflation-Output Variability in Sri Lanka: Lessons for Developing Economies.

This paper examines the impact of monetary policy on the inflation-output variability trade-off for Sri Lanka, drawing monetary policy lessons for developing economies. We examine how this trade-off has changed across different monetary policy episodes, and investigate the persistence of the variability of inflation and output after supply and demand shocks. Exploring the contribution of monetary policy to 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 are less persistent.