IMF Working Papers

The Ararat Fiscal Strategy Model: A Structural Framework for Fiscal Policy Analysis in Armenia

By Victoria Babajanyan, Daniel Baksa, Martin Fukac, Eduard Hakobyan, Arshaluys Harutyunyan, Narek Karapetyan, Babken Pashinyan, Garik Petrosyan, Luis-Felipe Zanna

June 10, 2022

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Victoria Babajanyan, Daniel Baksa, Martin Fukac, Eduard Hakobyan, Arshaluys Harutyunyan, Narek Karapetyan, Babken Pashinyan, Garik Petrosyan, and Luis-Felipe Zanna. The Ararat Fiscal Strategy Model: A Structural Framework for Fiscal Policy Analysis in Armenia, (USA: International Monetary Fund, 2022) accessed December 4, 2024

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.

Summary

This paper presents an overview of the Ararat Fiscal Strategy Model (AFSM), which is a structural, New-Keynesian, DSGE, small open economy model with a rich fiscal block that includes several expenditure and revenue instruments, and types of debt. The AFSM is now a formal part of the Ministry of Finance analytical toolkit to do macroeconomic fiscal policy scenario analysis, which feeds into policy discussions, budget planning, and the Medium-Term Expenditure Framework. The model was applied to assses the macroeconomic impact of the “first wave” of the Covid-19 pandemic on the Armenian economy, including the mitigating effects of policy responses. AFSM simulations revealed a potential severe impact in 2020, with declines in GDP and consumption of 12.9 and 11.7 percent, respectively, and a cumulative loss of GDP of 38 percent for the period 2020-2023. They also highlighted a significant fiscal outlook deterioration that would increase public debt-to-GDP ratios by 18.8 percentage points over 2020-23. The package of counter-cyclical fiscal measures of 3.6 percent of GDP, however, was estimated to cushion the 2020 GDP decline by almost 2 percentage points, as well as protect jobs. A second AFSM application related to the 2018 public investment under-execution showed the importance of improving the efficiency of public investment to have positive macroeconomic and fiscal effects.

Subject: Consumption, Current spending, Expenditure, Fiscal policy, National accounts, Public debt, Public investment spending

Keywords: AFSM application, AFSM simulation, Armenia, Consumption, Covid-19, Current spending, DSGE model, Financial programming, Fiscal policy multiplier, Fiscal rules, Global, Overview of the Ararat Fiscal Strategy Model, Public investment spending, Scenario analysis, Shock decomposition, Structural model

Publication Details

  • Pages:

    64

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2022/118

  • Stock No:

    WPIEA2022118

  • ISBN:

    9798400210754

  • ISSN:

    1018-5941