An empirical investigation of monitory policy integration: evidence from SAARC countries. T.U.I Peiris Lecturer Department of Accountancy & Finance Sabaragamuwa University of Sri Lanka Belihuloya Tel: +94452280023 Mobile: +94759040070 Abstract The formation of South Asian Association for Regional Cooperation (SAARC) is a key landmark decision taken by the leaders of the region to enjoy the unique benefits of economic integration. Main rational behind SAARC was to develop a congenial environment through summit diplomacy where all nations could interact peacefully with each other, cultivate sustainable peace and promote mutual economic well being by harnessing available resources in the region through the process of economic integration. Nevertheless, after 25 years of establishment, it is still a question, whether South Asian nations have been able to push the process of integration into full swing? Hence, it is important to study the present integrational structure of the region so as to persuade the policy makers to come up with more innovative decisions. Thus, this study intends to scrutinize the arrangement of present alliances of SAARC countries through the behavior of inflation rates. The econometric models of Granger Causality, Vector Autoregression (VAR) Variance Decomposition and BEKK GARCH are used. Annual Inflation rates of these countries during 1985 to 2011 are used for the investigation. The empirical results indicate that the monitory policy integration in this region is significant. However, Maldives, Bhutan and Nepal are not in shape of monitory policy integration as other counterparts of the SAARC group. Key words: Integration, Monitory Policy and SAARC. 1. Introduction An important catalyst for economic integration which gave rise to a range of new initiatives in Asian counterparts was the Asian financial crisis of 1997/98. The nature of Asian economic integration and cooperation has distinctive characteristics: the many initiatives emerged after the 1997/98 crisis have not sought to replicate the institutions of the European Union (EU), but have rather focused on finding new and flexible forms of cooperation that reflect the region's diversity and pragmatism. Nor Asia's regional initiatives intend to replace