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Exchange Rate, Money, and Wages: What is Driving Prices in Armenia?
Author:
Mrs. Armine Khachatryan
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,
Mr. David A. Grigorian
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Grigor Sargsyan null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2004: Issue 229
Language:
English
Publication Date:
01 Dec 2004
DOI:
https://doi.org/10.5089/9781451875508.001
ISBN:
9781451875508
ISSN:
1018-5941
Pages:
30
Keywords:
WP; price; interest rate; price level; Armenia; price dynamics; error correction model; monetary policy implementation; narrow money; monetary policy transmission mechanisms; error correction terms; treasury bill market; Exchange rates; Currency markets; Wages; Demand for money; Real exchange rates; Central and Eastern Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund