The Effectiveness of macroeconomic policies on changing the individual preference

Abstract

The study aims to identify the effectiveness of macroeconomic policies and socio-economic stability in changing individual preferences in Sri Lanka. Monthly, secondary data was collected to analyse the background from reliable institutions such as the Central Bank of Sri Lanka, the Department of Motor Traffic, and the Sri Lanka Customs and Tourism Development Authority, referring to the period from 2011 to 2017. Econometric techniques, including the Unit Root test, Vector Error Correction Model, and WALD, were utilized in the data analysis methodology. The results showed that the individual preference has a long-run association with monetary policy factors, fiscal policy factors, and the socio-economic stability of a country. The real interest rate, the tax rate on motor vehicles, and government expenditure were negatively related to individual preference. The long-run association of the model corrected the previous period's disequilibrium to 46%. Prominent factors that influenced "individual preference" in both the short run and long run were the real interest rate and the socio-economic stability of a country. Monetary policy factors and the socio-economic stability of a country were affected more by individual preference than fiscal policy factors. However, socio-economic stability was highly correlated with the individual-preference. Hence, it is essential to maintain the socio-economic stability of the country and monetary policy stability to enhance the individual preference in Sri Lanka.