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Exchange Rate, Money, and Wages: What is Driving Prices in Armenia?

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Author Info
David A. Grigorian
Armine Khachatryan
Grigor Sargsyan

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Abstract

This paper is the first attempt to look at inflation dynamics and monetary transmission mechanisms in Armenia in the context of a full information model containing three interrelated markets: foreign exchange, money, and labor. Using the vector error correction model (VECM) approach, we find that the exchange rate pass-through to prices is very strong relative to credit, wage, and interest rate channels. The analysis suggests a relatively fast adjustment of prices to long-run disequilibria in the exchange rate market, albeit with initial overshooting of the price level. In addition, we find no evidence of prices responding to changes in money and wages in a statistically significant manner.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/229.

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Length: 29 pages
Date of creation: 21 Dec 2004
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Handle: RePEc:imf:imfwpa:04/229

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Related research
Keywords: Price adjustments ; Armenia ; Exchange markets ; Wages ; Money markets ; Labor markets ; Economic models ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Andreas Billmeier & Leo Bonato, 2002. "Exchange Rate Pass-Through and Monetary Policy in Croatia," IMF Working Papers 02/109, International Monetary Fund. [Downloadable!]
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  2. Bennett T. McCallum & Monica Hargraves, 1994. "A Monetary Impulse Measure for Medium-Term Policy Analysis," IMF Working Papers 94/146, International Monetary Fund.
  3. Ben Hunt & Peter Isard, 2003. "Some Implications for Monetary Policy of Uncertain Exchange Rate Pass-Through," IMF Working Papers 03/25, International Monetary Fund. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Francis Y. Kumah, 2006. "The Role of Seasonality and Monetary Policy in Inflation Forecasting," IMF Working Papers 06/175, International Monetary Fund. [Downloadable!]
  2. Brieuc Monfort & Santiago Peña, 2008. "Inflation Determinants in Paraguay: Cost Push versus Demand Pull Factors," IMF Working Papers 08/270, International Monetary Fund. [Downloadable!]
  3. Holger Floerkemeier & Era Dabla-Norris, 2006. "Transmission Mechanisms of Monetary Policy in Armenia: Evidence from VAR Analysis," IMF Working Papers 06/248, International Monetary Fund. [Downloadable!]
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This page was last updated on 2009-11-20.

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