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Exchange Rate, Money, and Wages

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Author Info

  • Armine Khachatryan
  • David A. Grigorian
  • Grigor Sargsyan

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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Bibliographic Info

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

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Length: 30
Date of creation: 01 Dec 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/229

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Related research

Keywords: Price adjustments; Money markets; Labor markets; Economic models; Monetary policy; inflation; foreign exchange; money market; central bank; monetary transmission; monetary base; price level; aggregate demand; monetary policy implementation; terms of trade; monetary fund; money balances; monetary aggregates; price stability; real money; reserve requirements; foreign currency; money demand; monetary policy instruments; monetary transmission mechanisms; macroeconomic stability; demand for money; monetary authorities; monetary policy framework; monetary financing; inflation targeting; money growth; inflation dynamics; monetary economics; inflation targeting framework; monetary policy transmission mechanisms; low inflation; relative price; monetary regime; monetary statistics; neutrality of money; nominal interest rate; tight monetary policy; monetary transmission mechanism; domestic money market; monetary policy rules; monetary policy objectives; monetary condition; macroeconomic performance; liquidity management; open market operations; reserve requirement; reduction of inflation; monetary targeting;

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References

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  1. Louis Kuijs, 2002. "Monetary Policy Transmission Mechanisms and Inflation in Slovakia," IMF Working Papers 02/80, International Monetary Fund.
  2. Leo Bonato & Andreas Billmeier, 2002. "Exchange Rate Pass-Through and Monetary Policy in Croatia," IMF Working Papers 02/109, International Monetary Fund.
  3. Reinhart, Carmen & Calvo, Guillermo, 2001. "Fixing for your life," MPRA Paper 13873, University Library of Munich, Germany.
  4. Ben Hunt & Peter Isard, 2003. "Some Implications for Monetary Policy of Uncertain Exchange Rate Pass-Through," IMF Working Papers 03/25, International Monetary Fund.
  5. Bennett T. McCallum & Monica Hargraves, 1994. "A Monetary Impulse Measure for Medium-Term Policy Analysis," IMF Working Papers 94/146, International Monetary Fund.
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Cited by:
  1. Francis Y. Kumah, 2006. "The Role of Seasonality and Monetary Policy in Inflation Forecasting," IMF Working Papers 06/175, International Monetary Fund.
  2. Brieuc Monfort & Santiago Peña, 2008. "Inflation Determinants in Paraguay," IMF Working Papers 08/270, International Monetary Fund.
  3. Era Dabla-Norris & Holger Floerkemeier, 2006. "Transmission Mechanisms of Monetary Policy in Armenia," IMF Working Papers 06/248, International Monetary Fund.

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