Abstract:
The study examines whether the interest rate channel serves well as the major monetary
policy transmission channel to maintain monetary policy core objectives in the Sri
Lankan context. Monetary policy innovations, are transmitted to the macro economic
variables through several transmission channels, and the traditional interest rate channel
was identified as the way that transmits the monetary policy shocks to the price level
and output through firms' business decisions on investment. The study uses quantitative
techniques for the analysis, and the data has been collected for the period of 1978 to
2014. The Johansen Co-integration technique is employed for analysis due to the nonstationarity
of all the series used in the study.
