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A New Keynesian Model of the Armenian Economy

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  • Ara Stepanyan
  • Era Dabla-Norris
  • Ashot Anatolii Mkrtchyan
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    Abstract

    This paper develops a small open economy dynamic stochastic general equilibrium (DSGE) model of the Armenian economy. The structure of the model is largely motivated by recent developments in DSGE modeling, with key extensions to incorporate specific structural characteristics of the Armenian economy. The resultant model can be used to simulate monetary policy paths and help analyze the robustness of policy conclusions. The paper tests the model’s properties on Armenian data, demonstrating that the main stylized features relevant for monetary policy making are well captured by the model.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/66.

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    Length: 43
    Date of creation: 01 Mar 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/66

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    Related research

    Keywords: Inflation targeting; Monetary transmission mechanism; Inward remittances; Transfers of foreigners income; Exchange rate appreciation; inflation; exchange rate; real exchange rate; monetary policy; real interest rate; nominal exchange rate; real exchange rate appreciation; exchange rate movements; price level; terms of trade; inflation equation; exchange rate pass; exchange rate depreciation; exchange rate shock; price stability; real exchange rates; relative prices; nominal rate of return; monetary economics; real interest rates; inflation target; foreign currency; nominal exchange rate depreciation; exchange rate volatility; rate of inflation; aggregate demand; real exchange rate movements; real variables; higher rate of inflation; exchange rates; independent central bank; price of goods; rational expectations; macroeconomic stability; nominal interest rates; exchange rate flexibility; currency appreciation; inflation targeting regime; nominal interest rate; real exchange rate depreciation;

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    References

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    1. Ariel T. Burstein & Joao C. Neves & Sergio Rebelo, 2000. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based Stabilizations," RCER Working Papers 473, University of Rochester - Center for Economic Research (RCER).
    2. Kollman, R., 1996. "The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: a Quantitative Investigation," Cahiers de recherche 9614, Universite de Montreal, Departement de sciences economiques.
    3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    4. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
    5. Goldberg, Pinelopi Koujianou & Verboven, Frank, 2001. "The Evolution of Price Dispersion in the European Car Market," Review of Economic Studies, Wiley Blackwell, vol. 68(4), pages 811-48, October.
    6. Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
    7. Pablo A. Acosta & Emmanuel K.K. Lartey & Federico S. Mandelman, 2007. "Remittances and the Dutch disease," Working Paper 2007-08, Federal Reserve Bank of Atlanta.
    8. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 901-18, October.
    9. Lars E.O. Svensson, 2005. "Targeting versus instrument rules for monetary policy: what is wrong with McCallum and Nelson?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 613-626.
    10. Jordi Galí & Tommaso Monacelli, 2004. "Monetary policy and exchange rate volatility in a small open economy," Economics Working Papers 835, Department of Economics and Business, Universitat Pompeu Fabra.
    11. Buncic, Daniel & Melecky, Martin, 2007. "An estimated New Keynesian policy model for Australia," MPRA Paper 4138, University Library of Munich, Germany.
    12. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
    13. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Closing Small Open Economy Models," NBER Working Papers 9270, National Bureau of Economic Research, Inc.
    14. International Monetary Fund, 2007. "A Simple Dge Model for Inflation Targeting," IMF Working Papers 07/197, International Monetary Fund.
    15. International Monetary Fund, 2007. "Modalities of Moving to Inflation Targeting in Armenia and Georgia," IMF Working Papers 07/133, International Monetary Fund.
    16. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, vol. 91(2), pages 248-252, May.
    17. 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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    Citations

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    Cited by:
    1. Poghosyan, K. & Boldea, O., 2011. "Structural versus Matching Estimation: Transmission Mechanisms in Armenia," Discussion Paper 2011-104, Tilburg University, Center for Economic Research.
    2. Senbeta, Sisay, 2011. "A small open economy New Keynesian model for a foreign exchange constrained economy," MPRA Paper 29996, University Library of Munich, Germany.
    3. Poghosyan, K., 2012. "Structural and reduced-form modeling and forecasting with application to Armenia," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5590845, Tilburg University.
    4. Franziska Ohnsorge & Yevgeniya, 2011. "Forecasting growth in eastern Europe and central Asia," Working Papers 137, European Bank for Reconstruction and Development, Office of the Chief Economist.
    5. Senbeta, Sisay, 2011. "How applicable are the new keynesian DSGE models to a typical low-income economy?," MPRA Paper 30931, University Library of Munich, Germany.

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