IDEAS home Printed from https://ideas.repec.org/p/ara/wpaper/001.html
   My bibliography  Save this paper

Equilibrium Real Exchange Rate Model of Armenia

Author

Listed:
  • Vahagn Grigoryan

    (Monetary Policy Department, Central Bank of Armenia)

  • Arpine Dallakyan

    (Monetary Policy Department, Central Bank of Armenia)

Abstract

The equilibrium real exchange rate (ERER) is one of the key indicators for assessment of the state of economic development of a country. So it is of great importance to uncover the variables that influence on the RER and to forecast RER’s future path. Like a very common technique used in the literature for developing and transition countries we also used cointegrating equations in form of a restricted single-equation model, as far as Armenia has short-run time series problem, which does not allow estimating the VEC model. After some econometric tests 4 variables out of 30 were found to have significant explaining impact on RER. They are current transfers as a ratio of GDP, capital inflow, government investments in GDP, and nominal effective exchange rate as short-run (only) variable. Thus, the only policy instrument which the authorities may use to effect the level of the ERER is government investments (perhaps also total government spending). This model has enabled to estimate short-run and long-run real exchange rates, the adjustment paths to their equilibrium levels after external shocks, and it also observes the misalignments and explains the reasons of it. Besides it was used to assess the steady-state level of appreciation, which according to this model is estimated about 5.8 % per annum based on the developments of the last five years.

Suggested Citation

  • Vahagn Grigoryan & Arpine Dallakyan, 2007. "Equilibrium Real Exchange Rate Model of Armenia," Working Papers 1, Central Bank of the Republic of Armenia.
  • Handle: RePEc:ara:wpaper:001
    as

    Download full text from publisher

    File URL: https://www.cba.am/EN/panalyticalmaterialsresearches/Analytical_04.09.2014.pdf
    File Function: First version, 2007
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cui Hu & Faqin Lin & Xiaosong Wang, 2016. "Learning from exporting in China," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 24(2), pages 299-334, April.
    2. Nathan Nunn, 2009. "The Importance of History for Economic Development," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 65-92, May.
    3. Bun, Maurice J.G. & Carree, Martin A., 2005. "Bias-Corrected Estimation in Dynamic Panel Data Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 200-210, April.
    4. Behr, Andreas, 2003. "A comparison of dynamic panel data estimators: Monte Carlo evidence and an application to the investment function," Discussion Paper Series 1: Economic Studies 2003,05, Deutsche Bundesbank.
    5. Andreas Reinstaller & Peter Reschenhofer, 2015. "Path Dependence in National Systems of Production and "Self Discovery" of Environmental Technologies in the EU 28 Countries. WWWforEurope Working Paper No. 106," WIFO Studies, WIFO, number 58349, April.
    6. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    7. Evžen Kočenda & Karen Poghosyan, 2018. "Export Sophistication: A Dynamic Panel Data Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(12), pages 2799-2814, September.
    8. Kiviet, Jan F., 2012. "Monte Carlo Simulation for Econometricians," Foundations and Trends(R) in Econometrics, now publishers, vol. 5(1–2), pages 1-181, March.
    9. Mr. Nikola Spatafora & Rahul Anand & Mr. Saurabh Mishra, 2012. "Structural Transformation and the sophistication of Production," IMF Working Papers 2012/059, International Monetary Fund.
    10. Mehta, Aashish & Felipe, Jesus, 2014. "Education and the Journey to the Core: Path-dependence or Leapfrogging?," ADB Economics Working Paper Series 395, Asian Development Bank.
    11. Easterly, William, 2007. "Inequality does cause underdevelopment: Insights from a new instrument," Journal of Development Economics, Elsevier, vol. 84(2), pages 755-776, November.
    12. David J. Teece & Gary Pisano & Amy Shuen, 1997. "Dynamic capabilities and strategic management," Strategic Management Journal, Wiley Blackwell, vol. 18(7), pages 509-533, August.
    13. Felipe, Jesus & Kumar, Utsav & Abdon, Arnelyn, 2014. "How rich countries became rich and why poor countries remain poor: It's the economic structure…duh!," Japan and the World Economy, Elsevier, vol. 29(C), pages 46-58.
    14. Peter Egger & Michael Pfaffermayr, 2011. "Structural Estimation of Gravity Models with Path-Dependent Market Entry," FIW Research Reports series III-007, FIW.
    15. Sanjaya Lall (QEH), John Weiss and Jinkang Zhang, "undated". "The 'Sophistication' Of Exports: A New Measure Of Product Characteristics," QEH Working Papers qehwps123, Queen Elizabeth House, University of Oxford.
    16. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/GMM estimation and testing," Boston College Working Papers in Economics 667, Boston College Department of Economics, revised 05 Sep 2007.
    17. Nunn, Nathan, 2009. "The Importance of History for Economic Development," Scholarly Articles 33077824, Harvard University Department of Economics.
    18. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    19. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2007. "What you export matters," Journal of Economic Growth, Springer, vol. 12(1), pages 1-25, March.
    20. Finger, J M & Kreinin, M E, 1979. "A Measure of 'Export Similarity' and Its Possible Uses," Economic Journal, Royal Economic Society, vol. 89(356), pages 905-912, December.
    21. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    22. Faqin Lin & Ermias O. Weldemicael & Xiaosong Wang, 2017. "Export sophistication increases income in sub-Saharan Africa: evidence from 1981–2000," Empirical Economics, Springer, vol. 52(4), pages 1627-1649, June.
    23. Lin, Faqin, 2015. "Learning by exporting effect in China revisited: An instrumental Approach," China Economic Review, Elsevier, vol. 36(C), pages 1-13.
    24. Brückner, Markus, 2012. "Economic growth, size of the agricultural sector, and urbanization in Africa," Journal of Urban Economics, Elsevier, vol. 71(1), pages 26-36.
    25. Bennett, Daniel L. & Nikolaev, Boris, 2016. "Factor endowments, the rule of law and structural inequality," Journal of Institutional Economics, Cambridge University Press, vol. 12(4), pages 773-795, December.
    26. Lin, Faqin & Sim, Nicholas C.S., 2013. "Trade, income and the Baltic Dry Index," European Economic Review, Elsevier, vol. 59(C), pages 1-18.
    27. Manuel Heredia Caldeira Cabral & Paula Veiga, 2010. "Determinants of export diversification and sophistication in sub-saharan Africa," Nova SBE Working Paper Series wp550, Universidade Nova de Lisboa, Nova School of Business and Economics.
    28. C. A. Hidalgo & B. Klinger & A. -L. Barabasi & R. Hausmann, 2007. "The Product Space Conditions the Development of Nations," Papers 0708.2090, arXiv.org.
    29. Ricardo Hausmann & Bailey Klinger, 2006. "Structural Transformation and Patterns of Comparative Advantage in the Product Space," CID Working Papers 128, Center for International Development at Harvard University.
    30. Rafael Romeu & Mr. Nelson Camanho da Costa Neto, 2011. "Did Export Diversification Soften the Impact of the Global Financial Crisis?," IMF Working Papers 2011/099, International Monetary Fund.
    31. Holger Görg & Eric Strobl, 2016. "Multinational Companies And Productivity Spillovers: A Meta-Analysis," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 8, pages 145-161, World Scientific Publishing Co. Pte. Ltd..
    32. Robert Shelburne, 2010. "The Global Financial Crisis and Its Impact on Trade: The World and the European Emerging Economies," ECE Discussion Papers Series 2010_2, UNECE.
    33. Neng Liang & Arvind Parkhe, 1997. "Importer Behavior: the neglected Counterpart of International Exchange," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(3), pages 495-530, September.
    34. Ermias Weldemicael, 2014. "Technology, Trade Costs and Export Sophistication," The World Economy, Wiley Blackwell, vol. 37(1), pages 14-41, January.
    35. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/generalized method of moments estimation and testing," Stata Journal, StataCorp LP, vol. 7(4), pages 465-506, December.
    36. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    37. Greenaway, David & Sousa, Nuno & Wakelin, Katharine, 2004. "Do domestic firms learn to export from multinationals?," European Journal of Political Economy, Elsevier, vol. 20(4), pages 1027-1043, November.
    38. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    39. Gordon H. Hanson, 2012. "The Rise of Middle Kingdoms: Emerging Economies in Global Trade," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 41-64, Spring.
    40. Evzen Kocenda & Karen Poghosyan, 2017. "Export sophistication: A dynamic panel data approach," Working Papers 980, Central Bank of the Republic of Armenia.
    41. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
    42. Córcoles, David & Díaz-Mora, Carmen & Gandoy, Rosario, 2014. "Product sophistication: A tie that binds partners in international trade," Economic Modelling, Elsevier, vol. 44(S1), pages 33-41.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Semanur SoyyiÄŸit, 2019. "The Relationship Between Middle Income Trap and Structural Transformation: The Case of Selected Countries," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 11(4), pages 217-235, December.
    2. Evžen Kočenda & Karen Poghosyan, 2018. "Export Sophistication: A Dynamic Panel Data Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(12), pages 2799-2814, September.
    3. Baumöhl, Eduard & Iwasaki, Ichiro & Kočenda, Evžen, 2019. "Institutions and determinants of firm survival in European emerging markets," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 431-453.
    4. Juthathip Jongwanich, 2022. "Free Trade Agreements (FTAs) and Export Structures in Thailand," Discussion Papers 20230617, Thammasat University, Faculty of Economics, revised May 2022.
    5. Chletsos, Michael & Roupakias, Stelios, 2019. "Immigration and the economic performance of countries," MPRA Paper 94994, University Library of Munich, Germany.
    6. Evžen Kočenda & Karen Poghosyan, 2018. "Export Sophistication: A Dynamic Panel Data Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(12), pages 2799-2814, September.
    7. Rehman, Faheem Ur & Islam, Md. Monirul & Raza, Syed Ali, 2023. "Does disaggregate energy consumption matter to export sophistication and diversification in OECD countries? A robust panel model analysis," Renewable Energy, Elsevier, vol. 206(C), pages 274-284.
    8. Burak Sencer Atasoy, 2021. "The determinants of export sophistication: Does digitalization matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5135-5159, October.
    9. Ridha Nouira & Sami Saafi, 2022. "What Drives the Relationship Between Export Upgrading and Growth? The Role of Human Capital, Institutional Quality, and Economic Development," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(3), pages 1944-1961, September.
    10. Haini, Hazwan & Wei Loon, Pang & Li Li, Pang, 2023. "Can export diversification promote export upgrading? Evidence from an oil-dependent economy," Resources Policy, Elsevier, vol. 80(C).
    11. Kai Zhang & Dongyuan Liu, 2023. "Does Green Finance Promote Export Sophistication? An Analysis of the Moderating Effect Based on Green Taxes," Sustainability, MDPI, vol. 15(10), pages 1-18, May.
    12. Shakib, Mohammed & Sohag, Kazi & Hassan, M. Kabir & Vasilyeva, Rogneda, 2023. "Finance and export diversifications Nexus in Russian regions: Role of trade globalization and regional potential," Emerging Markets Review, Elsevier, vol. 57(C).
    13. Song Zhang & Chunlai Chen, 2020. "Does Outward Foreign Direct Investment Facilitate China's Export Upgrading?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 28(5), pages 64-89, September.
    14. Hermann Ndoya & Bruno Emmanuel Ongo Nkoa & Francis Hypolite Kemeze & Tii N. Nchofoung, 2024. "Financial development and economic complexity: The role of country stability," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(2), pages 415-447, April.
    15. Karishma Banga, 2022. "Digital Technologies and Product Upgrading in Global Value Chains: Empirical Evidence from Indian Manufacturing Firms," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(1), pages 77-102, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Evžen Kočenda & Karen Poghosyan, 2018. "Export Sophistication: A Dynamic Panel Data Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(12), pages 2799-2814, September.
    2. Evzen Kocenda & Karen Poghosyan, 2017. "Export sophistication: A dynamic panel data approach," Working Papers 980, Central Bank of the Republic of Armenia.
    3. Naima Chrid & Sami Saafi & Mohamed Chakroun, 2021. "Export Upgrading and Economic Growth: a Panel Cointegration and Causality Analysis," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(2), pages 811-841, June.
    4. Burak Sencer Atasoy, 2021. "The determinants of export sophistication: Does digitalization matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5135-5159, October.
    5. Stimpfle, Alexander & Stadelmann, David, 2015. "The Impact of Fundamental Development Factors on Different Income Groups: International Evidence," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113128, Verein für Socialpolitik / German Economic Association.
    6. Lectard, Pauline & Rougier, Eric, 2018. "Can Developing Countries Gain from Defying Comparative Advantage? Distance to Comparative Advantage, Export Diversification and Sophistication, and the Dynamics of Specialization," World Development, Elsevier, vol. 102(C), pages 90-110.
    7. Yue Teng & Dic Lo, 2019. "Determinants of Developing Countries' Export Upgrading: The Role of China and Productive Investment," Working Papers 227, Department of Economics, SOAS University of London, UK.
    8. Kamguia, Brice & Tadadjeu, Sosson & Miamo, Clovis & Njangang, Henri, 2022. "Does foreign aid impede economic complexity in developing countries?," International Economics, Elsevier, vol. 169(C), pages 71-88.
    9. Nguyen, Canh Phuc & Su, Thanh Dinh, 2021. "Economic integration and economic complexity: The role of basic resources in absorptive capability in 40 selected developing countries," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 609-625.
    10. Abonazel, Mohamed R., 2016. "Bias Correction Methods for Dynamic Panel Data Models with Fixed Effects," MPRA Paper 70628, University Library of Munich, Germany.
    11. Rougier, Eric, 2016. "“Fire in Cairo”: Authoritarian–Redistributive Social Contracts, Structural Change, and the Arab Spring," World Development, Elsevier, vol. 78(C), pages 148-171.
    12. Maurice J.G. Bun & Sarafidis, V., 2013. "Dynamic Panel Data Models," UvA-Econometrics Working Papers 13-01, Universiteit van Amsterdam, Dept. of Econometrics.
    13. Massimo Del Gatto & Adriana Di Liberto & Carmelo Petraglia, 2011. "Measuring Productivity," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 952-1008, December.
    14. Sèna Kimm Gnangnon, 2023. "Do unilateral trade preferences help reduce poverty in beneficiary countries?," International Journal of Economic Policy Studies, Springer, vol. 17(1), pages 249-288, February.
    15. Valentine Soumtang Bime & Dieudonné Mignamissi & Agathe Cassandra Koumis Ngagni, 2024. "Does financial openness matter for economic transformation in sub-Saharan Africa?," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-49, April.
    16. Alali, Walid Y., 2010. "Impact of Institutions and Policy on Economic Growth: Empirical Evidence," MPRA Paper 115610, University Library of Munich, Germany.
    17. Jan Kiviet & Milan Pleus & Rutger Poldermans, 2017. "Accuracy and Efficiency of Various GMM Inference Techniques in Dynamic Micro Panel Data Models," Econometrics, MDPI, vol. 5(1), pages 1-54, March.
    18. Jérôme Valette, 2018. "Do Migrants Transfer Productive Knowledge Back to Their Origin Countries?," Journal of Development Studies, Taylor & Francis Journals, vol. 54(9), pages 1637-1656, September.
    19. Pierre-Guillaume Méon & Khalid Sekkat, 2013. "FDI and Exports Diversification in Arab Countries," Working Papers 816, Economic Research Forum, revised Dec 2013.
    20. Vaseem Akram, 2018. "Does export diversification converge? Evidence from cross-country analysis," Economics Bulletin, AccessEcon, vol. 38(4), pages 2141-2151.

    More about this item

    Keywords

    Equilibrium Real Exchange Rate; cointegration;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ara:wpaper:001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Davit Hovhannisyan (email available below). General contact details of provider: https://edirc.repec.org/data/cbagvam.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.