Exogenous shocks and macroeconomic policies in LDCs : A study of Sri Lanka
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Date
1991-10-03
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Abstract
The main objectives of this paper are to analyses the impact of exogenous shocks on the Sri Lankan economy and to present some of the policies that might by employed to stabilize the domestic economy in response to exogenous shocks. An analysis of the impact of export price shocks on the Sri Lankan economy reveals that the sectorial adjustment mechanism and the impact on the economy are different in response to changes in the international price of each sector. However, in all cases the impact of external shocks is strongly felt in the monetary sector and the external sector. An analysis of active policies under different types of external price shocks indicates that the possibility of effective use of macroeconomic policies to offse: the detrimental impact od external price shocks is constrained by the lack of independence of monetary policy, by the embryonic nature of the capital and financial markets and by limited access to foreign finance.
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Macroeconomic policies, Sri lanka, Monetary policy