The Transmission Mechanism in Armenia: New Evidence from a Regime Switching VAR Analysis
IMF Working Papers, November 1, 2010
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- The Transmission Mechanism in Armenia: New Evidence from a Regime Switching VAR Analysis
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Bibliographic details
- Published: November 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455210770.001
Research question and context
- Examines whether the transmission mechanism in Armenia has been subject to a structural break.
- Contextual drivers highlighted:
- Introduction of inflation targeting in 2006.
- Important economic developments such as dedollarization and reduced levels of dollarization.
- Methodological approach: Markov-Switching VAR framework; also introduces a threshold variable into this framework.
Key findings
- Results support the existence of a structural break around the time inflation targeting was introduced and reduced levels of dollarization were observed.
- Introducing a threshold variable shows that reduced levels of dollarization are an important determinant of the effectiveness of monetary policy.
- The paper is described as the first attempt to analyze this question for Armenia using the specified regime-switching methodology.
Policy-relevant implications
- Changes in the macroeconomic framework (inflation targeting introduced in 2006 and dedollarization) are linked to shifts in monetary policy effectiveness.
- Monitoring and reducing dollarization levels can be important for strengthening the transmission of monetary policy.
Subjects and keywords (as provided)
- Subjects: 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