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Item A Multivariate Cointegration Analysis of Inflation in Sri Lanka(2011) Kesavarajah, M.This study attempts to analyze the experience of inflation in Sri Lanka for the period 1978 to 2010 using the econometric framework of Johanson and Juselius cointegration approach, vector error correction model(VECM) and Granger causality analysis. The Annual time series data drawn from various annual reports of Central Bank of Sri Lanka were used in this study. The empirical results of the study indicate the existence of long run dynamic relationships among the variables. Vector error correction model shows that money supply growth, budget deficit, and exchange rate depreciation have significant positive effects on inflation. Evidence from Granger causality analysis suggests the existence of unidirectional causality from money supply to inflation, exchange rate to inflation and budget deficit to inflation is significant, while the causal relationship from inflation to money supply, exchange rate and budget deficit is insignificant. Hence, the results of this study emphasize the need to put in place a stable macroeconomic policy environment relating to these variables in an effort to maintain price stability, since low inflation would enhance economic growth.Item Financial Intermediation and Economic Growth: A Lesson from Sri Lanka(2011) Rexiang, W.; Rathanasiri, R.A.The relationship between finance and growth has been well documented in the economic literature. A considerable body of theoretical literature suggests a strong and positive link between financial development and economic growth. The purpose of this study is to examine whether financial intermediation leads to economic growth in a small open economy of Sri Lanka using time series macro data for the period 1977-2008. This basically investigates the channel and the effect of financial intermediation to economic growth with a new framework. The model framework of the study develops as per the endogenous growth theory. The model explains the joint effect of financial intermediation, trade openness and other economic factors on economic growth in Sri Lanka. This paper uses Engle-Granger two step methodologies to find out long term relationship between financial intermediation and economic growth. And, short run dynamic of the model is explained by granger causality test. The findings of the study revealed that financial intermediation impact on economic growth in the long run but the relationship is not strong. Further, study reveals that financial intermediation promotes growth through the productivity channel rather than accumulation of capital.