THE IMPACT OF MONETARY POLICY ON ECONOMIC GROWTH IN SRI LANKA: A STUDY ON PANEL DATA

Economics

Economic growth is an emerging concept both in developed and developing countries, when determining many economic indicators specifically increasing standard of living, overcoming poverty, decreasing unemployment level, upholding per-capita income and attaining more foreign investments. Meanwhile, monetary policy instruments can be considered as key player in economic growth (GDP). Therefore, main objective of current study is to investigate the impact of Monetary Policy instruments on Economic Growth (GDP) in Sri Lanka. Through a sound literature review: interest rate, exchange rate and money supply considered as proxy of Monetary Policy instruments. Data were in secondary mode which collected from Central Bank publications for the period of 1985 to 2017 on annual basis. Regression analysis model have been used as main analysis tool with descriptive statistics and correlation analysis while it indicates 99.8% of variation on economic growth by the independent variables. The results of this study are highly in line with established empirical findings as the interest rate and exchange rate have been positively affected on economic growth in Sri Lanka with absence of significant relationship. As it reported money supply indicates a significant and positive impact on economic growth by concluding that money supply is the only one monetary policy instrument which significantly impact for the economic growth in Sri Lanka for last 33 years.

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