Abstract:
Monetary policy tools change from one country to another based
on their legal and fiscal status. It is necessary to have models to
understand monetary variables affecting the country's economy. This research study aims to evaluate the monetary variable shocks which affect the Sri Lankan economy. Five
Structural Vector Autoregressive models called generic model,
bank lending model, money effect model, exchange rate model
and composite model were generated to evaluate the impacts of
Sri Lankan Economy by the monetary variables Gross Domestic
Product, Consumer Price Index, Reserve Money, Commercial
Bank Loan, Money Supply, Bank Rate and Exchange Rate. It
was found that, necessary action to be taken to implement
appropriate monetary policies to keep gross domestic product in a
progressive path. And keeping gross domestic product in a
progressive path will lead Sri Lankan currency to appreciate
against US dollar. Implementation of strong monetary policies to
monitor bank rates and commercial bank loans closely will lead
progressive economic growth.
