Exchange Rate, Money, and Wages: What is Driving Prices in Armenia?
AbstractThis 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 InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 04/229.
Date of creation: 01 Dec 2004
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-22 (All new papers)
- NEP-CBA-2005-10-22 (Central Banking)
- NEP-CWA-2005-10-22 (Central & Western Asia)
- NEP-MAC-2005-10-22 (Macroeconomics)
- NEP-MON-2005-10-22 (Monetary Economics)
- NEP-TRA-2005-10-22 (Transition Economics)
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