ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka

Rohini Liyanage

doi:doi:10.11648/j.ijebo.20241203.14

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ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka

Rohini Liyanage^*

Published in International Journal of Economic Behavior and Organization (Volume 12, Issue 3)

Received: 30 July 2024 Accepted: 27 August 2024 Published: 11 September 2024

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Abstract

Inflation targeting has been introduced as one of the monetary policy framework since the end of the 1990s. Forecasting inflation under the inflation-targeting monetary policy framework is also expected to improve with superior performance by constantly feeding updated information into the forecasting process, considering the domestic and global market conditions and developments. Literature evidence that inflation forecasting under inflation targeting is a challenging task with risk and uncertainty that are not easy to capture even in the latest modeling techniques. Inflation-targeting monetary policy was adopted by the Central Bank of Sri Lanka after the enactment of the Central Bank of Sri Lanka Act with effect from 15.09.2023. This study examines inflation forecasting under the inflation-targeting monetary policy in Sri Lanka implemented with a clear mandate assigned in the agreement for a flexible inflation targeting framework to guide the market and inflation expectations. Automatic ARIMA forecasting techniques are employed to forecast inflation using two series of price indices with different base years from 2016M01 to 2026M12, and 2022M01 to 2026 M12 including 30 months as forecasting length. According to the findings, inflation forecasting is in line with the 5 percent targeted level with a 3 percent margin to fluctuate for both sides subject to the upside and downside risk factors. Accordingly, Inflation forecasting is within the inflation projections indicated under the inflation fan chart. It further suggests that inflation has been gradually stable in SL compared to the recently elevated inflation experience. Therefore, inflation targeting and projections can be used to shape and guide market expectations to facilitate decision-making in forward looking policies toward achieving and maintaining domestic price stability, which is the primary objective of the Central Bank of Sri Lanka.

Published in	International Journal of Economic Behavior and Organization (Volume 12, Issue 3)
DOI	10.11648/j.ijebo.20241203.14
Page(s)	133-162
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Inflation Targeting, ARIMA, Inflation Fan Chart, 5% Targeted Level, CBSL

References

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[19]	Valera, Harold Glenn A. Inflation and Macroeconomic Effects of Inflation Targeting in Asia: Time-Series and Cross-Country Analysis. Diss. University of Waikato, 2017.
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APA Style

Liyanage, R. (2024). ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka. International Journal of Economic Behavior and Organization, 12(3), 133-162. https://doi.org/10.11648/j.ijebo.20241203.14

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ACS Style

Liyanage, R. ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka. Int. J. Econ. Behav. Organ. 2024, 12(3), 133-162. doi: 10.11648/j.ijebo.20241203.14

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AMA Style

Liyanage R. ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka. Int J Econ Behav Organ. 2024;12(3):133-162. doi: 10.11648/j.ijebo.20241203.14

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@article{10.11648/j.ijebo.20241203.14,
  author = {Rohini Liyanage},
  title = {ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka
},
  journal = {International Journal of Economic Behavior and Organization},
  volume = {12},
  number = {3},
  pages = {133-162},
  doi = {10.11648/j.ijebo.20241203.14},
  url = {https://doi.org/10.11648/j.ijebo.20241203.14},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20241203.14},
  abstract = {Inflation targeting has been introduced as one of the monetary policy framework since the end of the 1990s. Forecasting inflation under the inflation-targeting monetary policy framework is also expected to improve with superior performance by constantly feeding updated information into the forecasting process, considering the domestic and global market conditions and developments. Literature evidence that inflation forecasting under inflation targeting is a challenging task with risk and uncertainty that are not easy to capture even in the latest modeling techniques. Inflation-targeting monetary policy was adopted by the Central Bank of Sri Lanka after the enactment of the Central Bank of Sri Lanka Act with effect from 15.09.2023. This study examines inflation forecasting under the inflation-targeting monetary policy in Sri Lanka implemented with a clear mandate assigned in the agreement for a flexible inflation targeting framework to guide the market and inflation expectations. Automatic ARIMA forecasting techniques are employed to forecast inflation using two series of price indices with different base years from 2016M01 to 2026M12, and 2022M01 to 2026 M12 including 30 months as forecasting length. According to the findings, inflation forecasting is in line with the 5 percent targeted level with a 3 percent margin to fluctuate for both sides subject to the upside and downside risk factors. Accordingly, Inflation forecasting is within the inflation projections indicated under the inflation fan chart. It further suggests that inflation has been gradually stable in SL compared to the recently elevated inflation experience. Therefore, inflation targeting and projections can be used to shape and guide market expectations to facilitate decision-making in forward looking policies toward achieving and maintaining domestic price stability, which is the primary objective of the Central Bank of Sri Lanka.
},
 year = {2024}
}

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TY  - JOUR
T1  - ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka

AU  - Rohini Liyanage
Y1  - 2024/09/11
PY  - 2024
N1  - https://doi.org/10.11648/j.ijebo.20241203.14
DO  - 10.11648/j.ijebo.20241203.14
T2  - International Journal of Economic Behavior and Organization
JF  - International Journal of Economic Behavior and Organization
JO  - International Journal of Economic Behavior and Organization
SP  - 133
EP  - 162
PB  - Science Publishing Group
SN  - 2328-7616
UR  - https://doi.org/10.11648/j.ijebo.20241203.14
AB  - Inflation targeting has been introduced as one of the monetary policy framework since the end of the 1990s. Forecasting inflation under the inflation-targeting monetary policy framework is also expected to improve with superior performance by constantly feeding updated information into the forecasting process, considering the domestic and global market conditions and developments. Literature evidence that inflation forecasting under inflation targeting is a challenging task with risk and uncertainty that are not easy to capture even in the latest modeling techniques. Inflation-targeting monetary policy was adopted by the Central Bank of Sri Lanka after the enactment of the Central Bank of Sri Lanka Act with effect from 15.09.2023. This study examines inflation forecasting under the inflation-targeting monetary policy in Sri Lanka implemented with a clear mandate assigned in the agreement for a flexible inflation targeting framework to guide the market and inflation expectations. Automatic ARIMA forecasting techniques are employed to forecast inflation using two series of price indices with different base years from 2016M01 to 2026M12, and 2022M01 to 2026 M12 including 30 months as forecasting length. According to the findings, inflation forecasting is in line with the 5 percent targeted level with a 3 percent margin to fluctuate for both sides subject to the upside and downside risk factors. Accordingly, Inflation forecasting is within the inflation projections indicated under the inflation fan chart. It further suggests that inflation has been gradually stable in SL compared to the recently elevated inflation experience. Therefore, inflation targeting and projections can be used to shape and guide market expectations to facilitate decision-making in forward looking policies toward achieving and maintaining domestic price stability, which is the primary objective of the Central Bank of Sri Lanka.

VL  - 12
IS  - 3
ER  -

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Author Information

Rohini Liyanage

Department of Economics, University of Colombo, Colombo, Sri Lanka

Contact Email

http://orcid.org/0000-0003-1539-0665

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APA Style

Liyanage, R. (2024). ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka. International Journal of Economic Behavior and Organization, 12(3), 133-162. https://doi.org/10.11648/j.ijebo.20241203.14

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ACS Style

Liyanage, R. ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka. Int. J. Econ. Behav. Organ. 2024, 12(3), 133-162. doi: 10.11648/j.ijebo.20241203.14

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AMA Style

Liyanage R. ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka. Int J Econ Behav Organ. 2024;12(3):133-162. doi: 10.11648/j.ijebo.20241203.14

Copy | Download

@article{10.11648/j.ijebo.20241203.14,
  author = {Rohini Liyanage},
  title = {ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka
},
  journal = {International Journal of Economic Behavior and Organization},
  volume = {12},
  number = {3},
  pages = {133-162},
  doi = {10.11648/j.ijebo.20241203.14},
  url = {https://doi.org/10.11648/j.ijebo.20241203.14},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20241203.14},
  abstract = {Inflation targeting has been introduced as one of the monetary policy framework since the end of the 1990s. Forecasting inflation under the inflation-targeting monetary policy framework is also expected to improve with superior performance by constantly feeding updated information into the forecasting process, considering the domestic and global market conditions and developments. Literature evidence that inflation forecasting under inflation targeting is a challenging task with risk and uncertainty that are not easy to capture even in the latest modeling techniques. Inflation-targeting monetary policy was adopted by the Central Bank of Sri Lanka after the enactment of the Central Bank of Sri Lanka Act with effect from 15.09.2023. This study examines inflation forecasting under the inflation-targeting monetary policy in Sri Lanka implemented with a clear mandate assigned in the agreement for a flexible inflation targeting framework to guide the market and inflation expectations. Automatic ARIMA forecasting techniques are employed to forecast inflation using two series of price indices with different base years from 2016M01 to 2026M12, and 2022M01 to 2026 M12 including 30 months as forecasting length. According to the findings, inflation forecasting is in line with the 5 percent targeted level with a 3 percent margin to fluctuate for both sides subject to the upside and downside risk factors. Accordingly, Inflation forecasting is within the inflation projections indicated under the inflation fan chart. It further suggests that inflation has been gradually stable in SL compared to the recently elevated inflation experience. Therefore, inflation targeting and projections can be used to shape and guide market expectations to facilitate decision-making in forward looking policies toward achieving and maintaining domestic price stability, which is the primary objective of the Central Bank of Sri Lanka.
},
 year = {2024}
}

Copy | Download

TY  - JOUR
T1  - ARMA-Based Inflation Forecasting Under the Inflation Targeting Framework in Sri Lanka

AU  - Rohini Liyanage
Y1  - 2024/09/11
PY  - 2024
N1  - https://doi.org/10.11648/j.ijebo.20241203.14
DO  - 10.11648/j.ijebo.20241203.14
T2  - International Journal of Economic Behavior and Organization
JF  - International Journal of Economic Behavior and Organization
JO  - International Journal of Economic Behavior and Organization
SP  - 133
EP  - 162
PB  - Science Publishing Group
SN  - 2328-7616
UR  - https://doi.org/10.11648/j.ijebo.20241203.14
AB  - Inflation targeting has been introduced as one of the monetary policy framework since the end of the 1990s. Forecasting inflation under the inflation-targeting monetary policy framework is also expected to improve with superior performance by constantly feeding updated information into the forecasting process, considering the domestic and global market conditions and developments. Literature evidence that inflation forecasting under inflation targeting is a challenging task with risk and uncertainty that are not easy to capture even in the latest modeling techniques. Inflation-targeting monetary policy was adopted by the Central Bank of Sri Lanka after the enactment of the Central Bank of Sri Lanka Act with effect from 15.09.2023. This study examines inflation forecasting under the inflation-targeting monetary policy in Sri Lanka implemented with a clear mandate assigned in the agreement for a flexible inflation targeting framework to guide the market and inflation expectations. Automatic ARIMA forecasting techniques are employed to forecast inflation using two series of price indices with different base years from 2016M01 to 2026M12, and 2022M01 to 2026 M12 including 30 months as forecasting length. According to the findings, inflation forecasting is in line with the 5 percent targeted level with a 3 percent margin to fluctuate for both sides subject to the upside and downside risk factors. Accordingly, Inflation forecasting is within the inflation projections indicated under the inflation fan chart. It further suggests that inflation has been gradually stable in SL compared to the recently elevated inflation experience. Therefore, inflation targeting and projections can be used to shape and guide market expectations to facilitate decision-making in forward looking policies toward achieving and maintaining domestic price stability, which is the primary objective of the Central Bank of Sri Lanka.

VL  - 12
IS  - 3
ER  -

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