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The Transmission Mechanism in Armenia

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  • International Monetary Fund

Abstract

The introduction of inflation targeting in 2006, together with important economic developments such as dedollarization, marked the beginning of a new macroeconomic framework in Armenia, which is likely to have changed the effectiveness of monetary policy. This paper is the first attempt to analyze whether the transmission mechanism in Armenia has been subject to a structural break by employing a Markov-Switching VAR framework. Results support the existence of such a structural break around the time inflation targeting was introduced and reduced levels of dollarization were observed. Results from introducing a threshold variable into this framework furthermore show that reduced levels of dollarization are an important determinant of the effectiveness of monetary policy.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/270.

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Length: 31
Date of creation: 01 Nov 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/270

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Keywords: Inflation targeting; Dollarization; Economic models; Monetary transmission mechanism; inflation; monetary policy; central bank; monetary transmission; money supply; foreign currency; monetary fund; liquidity management; inflation targeting framework; money growth; macroeconomic stability; foreign exchange; monetary stance; transmission of monetary policy; monetary framework; money market; nominal interest rate; aggregate demand; rate of inflation; high inflation; monetary policy operations; low inflation; inflation dynamics; monetary shock; issuance of government securities; inflation targeting regime; nominal interest rates; real interest rate; monetary policy transmission mechanism; effect of money growth; money markets; monetary authorities; demand for money; government securities; price stability;

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References

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  1. Fujiwara, Ippei, 2006. "Evaluating monetary policy when nominal interest rates are almost zero," Journal of the Japanese and International Economies, Elsevier, vol. 20(3), pages 434-453, September.
  2. Rania Al Mashat & Andreas Billmeier, 2008. "The Monetary Transmission Mechanism in Egypt," Working Papers 411, Economic Research Forum, revised Jun 2008.
  3. Adrián Armas & Francisco Grippa, 2005. "Targeting Inflation in a Dollarized Economy: The Peruvian Experience," IDB Publications 6827, Inter-American Development Bank.
  4. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," NBER Working Papers 10015, National Bureau of Economic Research, Inc.
    • Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," CEMA Working Papers 594, China Economics and Management Academy, Central University of Finance and Economics.
  5. Luis Carranza & José E. Galdón-Sánchez & Javier Gómez Biscarri, 2004. "Exchange Rate and Inflation Dynamics in Dollarized Economies," Faculty Working Papers 10/04, School of Economics and Business Administration, University of Navarra.
  6. International Monetary Fund, 2007. "Modalities of Moving to Inflation Targeting in Armenia and Georgia," IMF Working Papers 07/133, International Monetary Fund.
  7. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
  8. Ehrmann, Michael & Ellison, Martin & Valla, Natacha, 2003. "Regime-dependent impulse response functions in a Markov-switching vector autoregression model," Economics Letters, Elsevier, vol. 78(3), pages 295-299, March.
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Citations

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Cited by:
  1. Prachi Mishra & Peter Montiel, 2012. "How Effective is Monetary Transmission in Low-Income Countries? A Survey of the Empirical Evidence," IMF Working Papers 12/143, International Monetary Fund.
  2. Mishra, Prachi & Montiel, Peter J & Spilimbergo, Antonio, 2011. "How Effective Is Monetary Transmission in Developing Countries? A Survey of the Empirical Evidence," CEPR Discussion Papers 8577, C.E.P.R. Discussion Papers.
  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. Poghosyan, Karen & Boldea, Otilia, 2013. "Structural versus matching estimation: Transmission mechanisms in Armenia," Economic Modelling, Elsevier, vol. 30(C), pages 136-148.
  5. Jamilov, Rustam, 2012. "Channels of Monetary Transmission in the CIS," MPRA Paper 39568, University Library of Munich, Germany.

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