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Title: EXCHANGE RATE CHANGES AND THEIR IMPACT ON INFLATION; ASSESSING THE EVIDENCE FROM SRI LANKA
Authors: Ajith Dissanayaka
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Ajith Dissanayaka Department of Economics, University of Kelaniya, Sri Lanka.
MLA 8 Dissanayaka, Ajith. "EXCHANGE RATE CHANGES AND THEIR IMPACT ON INFLATION; ASSESSING THE EVIDENCE FROM SRI LANKA." Int. j. of Social Science and Economic Research, vol. 4, no. 10, Oct. 2019, pp. 6302-6318, ijsser.org/more2019.php?id=484. Accessed Oct. 2019. APA Dissanayaka, A. (2019, October). EXCHANGE RATE CHANGES AND THEIR IMPACT ON INFLATION; ASSESSING THE EVIDENCE FROM SRI LANKA. Int. j. of Social Science and Economic Research, 4(10), 6302-6318. Retrieved from ijsser.org/more2019.php?id=484 Chicago Dissanayaka, Ajith. "EXCHANGE RATE CHANGES AND THEIR IMPACT ON INFLATION; ASSESSING THE EVIDENCE FROM SRI LANKA." Int. j. of Social Science and Economic Research 4, no. 10 (October 2019), 6302-6318. Accessed October, 2019. ijsser.org/more2019.php?id=484.
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Abstract: This paper evaluates by simulating a small macro-economic model, the possibility of maintaining inflation at a lower rate by restraining the exchange rate changes, and the consequences of such restraints on the major macro-economic variables. The paper points out that it is possible to maintain inflation at a lower rate by restraining exchange rate depreciations, but that it has adverse repercussions on the balance of payments and real output. Further, the results suggest that exchange rate depreciations would not cause continuing inflationary pressure in Sri Lanka and the impact of an exchange rate depreciation on domestic prices would be at a substantially lower rate than the rate at which exchange rates are depreciated. Hence, exchange rate adjustments could be used effectively in Sri Lanka as an element of an adjustment programme.

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