Empirical Investigation of the Sources of Inflation in Sri Lanka: Assessing the Roles of Global and Domestic Drivers
The annual inflation rate in Sri Lanka accelerated to record levels in recent years, especially after the COVID-19 pandemic. Though the inflation rate had declined to pre-pandemic levels by mid-2024, it is of great importance to identify the factors that caused hyperinflation during the COVID-19 pan...
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| Language: | English |
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MDPI AG
2025-04-01
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| Series: | Economies |
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| Online Access: | https://www.mdpi.com/2227-7099/13/4/102 |
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| author | E. M. Ekanayake P. M. A. L. Dissanayake |
| author_facet | E. M. Ekanayake P. M. A. L. Dissanayake |
| author_sort | E. M. Ekanayake |
| collection | DOAJ |
| description | The annual inflation rate in Sri Lanka accelerated to record levels in recent years, especially after the COVID-19 pandemic. Though the inflation rate had declined to pre-pandemic levels by mid-2024, it is of great importance to identify the factors that caused hyperinflation during the COVID-19 pandemic. The objective of this study is to investigate the drivers of inflation in Sri Lanka using a structural vector autoregressive model and a multiple regression model. The study assesses both the global drivers and the domestic drivers of inflation. The study uses monthly data on the inflation rate, global oil price, exchange rate, policy rate, the global supply chain pressure index, and unemployment rate, covering the period from January 2020 to August 2024, focusing on the period of rapid increase in the inflation rate in Sri Lanka. The empirical results of the study provide evidence to conclude that the inflation rate in Sri Lanka during the 2020–2024 period was mainly driven by the growth rates in money supply, exchange rates, and global supply chain disruptions. The results also show that the volatility of the Sri Lanka inflation rate is mostly explained by the money supply and exchange rate movements in the long run. |
| format | Article |
| id | doaj-art-bab7f2aaccb544ae9036d9c4c3aaa3f1 |
| institution | OA Journals |
| issn | 2227-7099 |
| language | English |
| publishDate | 2025-04-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Economies |
| spelling | doaj-art-bab7f2aaccb544ae9036d9c4c3aaa3f12025-08-20T02:28:33ZengMDPI AGEconomies2227-70992025-04-0113410210.3390/economies13040102Empirical Investigation of the Sources of Inflation in Sri Lanka: Assessing the Roles of Global and Domestic DriversE. M. Ekanayake0P. M. A. L. Dissanayake1College of Business and Entrepreneurship, Bethune-Cookman University, 640 Dr. Mary McLeod Bethune Blvd., Daytona Beach, FL 32114, USADepartment of Economics, University of Colombo, Colombo 03, Sri LankaThe annual inflation rate in Sri Lanka accelerated to record levels in recent years, especially after the COVID-19 pandemic. Though the inflation rate had declined to pre-pandemic levels by mid-2024, it is of great importance to identify the factors that caused hyperinflation during the COVID-19 pandemic. The objective of this study is to investigate the drivers of inflation in Sri Lanka using a structural vector autoregressive model and a multiple regression model. The study assesses both the global drivers and the domestic drivers of inflation. The study uses monthly data on the inflation rate, global oil price, exchange rate, policy rate, the global supply chain pressure index, and unemployment rate, covering the period from January 2020 to August 2024, focusing on the period of rapid increase in the inflation rate in Sri Lanka. The empirical results of the study provide evidence to conclude that the inflation rate in Sri Lanka during the 2020–2024 period was mainly driven by the growth rates in money supply, exchange rates, and global supply chain disruptions. The results also show that the volatility of the Sri Lanka inflation rate is mostly explained by the money supply and exchange rate movements in the long run.https://www.mdpi.com/2227-7099/13/4/102inflationmonetary policyexchange rateglobal oil priceSri Lanka |
| spellingShingle | E. M. Ekanayake P. M. A. L. Dissanayake Empirical Investigation of the Sources of Inflation in Sri Lanka: Assessing the Roles of Global and Domestic Drivers Economies inflation monetary policy exchange rate global oil price Sri Lanka |
| title | Empirical Investigation of the Sources of Inflation in Sri Lanka: Assessing the Roles of Global and Domestic Drivers |
| title_full | Empirical Investigation of the Sources of Inflation in Sri Lanka: Assessing the Roles of Global and Domestic Drivers |
| title_fullStr | Empirical Investigation of the Sources of Inflation in Sri Lanka: Assessing the Roles of Global and Domestic Drivers |
| title_full_unstemmed | Empirical Investigation of the Sources of Inflation in Sri Lanka: Assessing the Roles of Global and Domestic Drivers |
| title_short | Empirical Investigation of the Sources of Inflation in Sri Lanka: Assessing the Roles of Global and Domestic Drivers |
| title_sort | empirical investigation of the sources of inflation in sri lanka assessing the roles of global and domestic drivers |
| topic | inflation monetary policy exchange rate global oil price Sri Lanka |
| url | https://www.mdpi.com/2227-7099/13/4/102 |
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