The Transmission Mechanism in Armenia: New Evidence from a Regime Switching VAR Analysis

November 1, 2010

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The Transmission Mechanism in Armenia: New Evidence from a Regime Switching VAR Analysis, (USA: International Monetary Fund, 2010) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Central bank policy rate, Dollarization, Exchange rate pass-through, Exchange rates, Financial services, Foreign exchange, Inflation targeting, Monetary policy

Keywords: Armenia, Central bank, Central bank policy rate, Credit dollarization, Dollarization, Dollarization level, Dollarization regime, Economic activity, Exchange rate channel, Exchange rate pass-through, Exchange rates, Foreign currency, Global, Inflation expectation, Inflation targeting, Interest rate channel, Loan dollarization, Monetary policy, Transmission mechanism, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/270
Stock No:

WPIEA2010270
ISBN:

9781455210770
ISSN:

1018-5941

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