Systematic Importance of Monetary Expansion on Economy Through the Impact of Balance of Payments; a Look Through the Sri Lankan Economy 1995 – 2018

Abstract

Monetary Policy and the Balance of Payments are key parameters in a country, in elevating the economy to the next favorable level. Balance of payments can be used as a measurement to understand whether the country in question is in debt to the rest of the world. Proper management of the mentioned parameters though different vital. The aim of this study is to analyze the impact of the monetary expansion on Balance of Payments. Furthermore, in order to identify the impact of monetary expansion on the balance of payment, paper investigates the fluctuation of interest rate, inflation rate and exchange rate on Balance of payment. For this purpose, data from Central Bank of Sri Lanka and world bank were collected for a sample period of twenty-three years from 1995 to 2018. In this regard, qualitative research though different literature sources and simple linear regression technique has been used. The data analyze concluded that there is a negative string relationship among the country's balance of Payment and broad money supply. Furthermore, it was noted that in Sri Lanka interest rate, inflation rate and the exchange rate to have a negative impact on the Balance of payments.