International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Modelling and Forecasting Currency Demand in Sri Lanka - An Empirical Study
Sanduni Kulatunge

The main focus of this paper is to examine the evolving determinants of currency demand and forecasting of Currency in Circulation (CIC) in Sri Lankan context using monthly and quarterly data for the period of 2001-2016. Using the Vector Error Correction Model (VECM), this study finds that variables such as the deposit rate, inflation, GDP and dummy variables for New Year/ Christmas and election were significant in explaining changes in CIC. Forecast produced by using Exponential Smoothing Approach and Auto-Regressive Integrated Moving Average (ARIMA) Model matches the monthly behaviour of CIC and capture seasonal and cyclical effects as well.

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