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

Author/Editor: Bordon, Anna R | Weber, Anke
Authorized for Distribution: November 1, 2010
Electronic Access: Free Full Text (PDF file size is 1,345KB)
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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.
 
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Series: Working Paper No. 10/270
Subject(s): Armenia | Dollarization | Economic models | Exchange rate policy | Inflation targeting | Monetary policy | Monetary transmission mechanism
Author's keyword(s): Armenia | monetary policy | transmission mechanism | inflation targeting | dollarization
 
English  
    Published:   November 1, 2010        
            Format:   Paper
    Stock No:   WPIEA2010270   Pages:   31
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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