Unanticipated Monetary Shocks and Exchange Rate Variations in Sri Lanka

Indian Economic Journal, Vol. 58, No. 1, pp. 112-133, April-June 2010

Posted: 14 Jan 2012

Date Written: January 12, 2012

Abstract

This paper examines how unanticipated monetary shocks cause variations in exchange rate in Sri Lanka under the independent float regime. The study addresses this issue under both the rational and adaptive expectations framework. GARCH (generalised autoregressive conditional heteroskedasticity) (1, 2) based minimum mean squared error (MSE) forecast give forth the series of anticipated and unanticipated money supply. Exchange rate series, on the other hand, followed martingale stochastic process. The study also found the evidence that in the variations of Sri Lankan currency, unanticipated monetary shocks assure significant role.

Keywords: unanticipated monetary shock, rational expectation, adaptive expectations, exchange rate

JEL Classification: F31, E52, C32

Suggested Citation

Maitra, Biswajit, Unanticipated Monetary Shocks and Exchange Rate Variations in Sri Lanka (January 12, 2012). Indian Economic Journal, Vol. 58, No. 1, pp. 112-133, April-June 2010, Available at SSRN: https://ssrn.com/abstract=1983673

Biswajit Maitra (Contact Author)

University of Gour Banga ( email )

P.O. Mokdumpur
Malda, West Bengal 732103
India

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