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Exchange Rate, Money, and Wages; What is Driving Prices in Armenia?

Author

Listed:
  • 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.

Suggested Citation

  • Armine Khachatryan & David A. Grigorian & Grigor Sargsyan, 2004. "Exchange Rate, Money, and Wages; What is Driving Prices in Armenia?," IMF Working Papers 04/229, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/229
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    References listed on IDEAS

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    1. Benjamin L Hunt & Peter Isard, 2003. "Some Implications for Monetary Policy of Uncertain Exchange Rate Pass-Through," IMF Working Papers 03/25, International Monetary Fund.
    2. Billmeier, Andreas & Bonato, Leo, 2004. "Exchange rate pass-through and monetary policy in Croatia," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 426-444, September.
    3. Louis Kuijs, 2002. "Monetary Policy Transmission Mechanisms and Inflation in Slovakia," IMF Working Papers 02/80, International Monetary Fund.
    4. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
    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. Era Dabla-Norris & Holger Floerkemeier, 2006. "Transmission Mechanisms of Monetary Policy in Armenia; Evidence from VAR Analysis," IMF Working Papers 06/248, International Monetary Fund.
    2. Francis Y Kumah, 2006. "The Role of Seasonality and Monetary Policy in Inflation Forecasting," IMF Working Papers 06/175, International Monetary Fund.
    3. Brieuc Monfort & Santiago Peña, 2008. "Inflation Determinants in Paraguay; Cost Push versus Demand Pull Factors," IMF Working Papers 08/270, International Monetary Fund.

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