Exchange rate pass-through to inflation in Armenia: A disaggregated and shock-based analysis
Central Bank of Armenia
Exchange rate pass-through to inflation in Armenia: A disaggregated and shock-based analysis
Working paper WP-2025-05
Anahit Matinyan
Abstract
This paper examines exchange rate pass-through (ERPT) to inflation in Armenia using monthly data from 2008–2023. Combining reduced-form estimation with a structural vector autoregression (SVAR) model, it provides evidence on both average and shock-specific ERPT. The analysis yields three key findings. First, exchange rate fluctuations affect domestic prices primarily through the U.S. dollar exchange rate, confirming the relevance of the dominant currency paradigm. Second, ERPT is highly heterogeneous across consumer price index (CPI) components, with larger effects for tradable and imported goods and limited responses for non-tradables and services. Notably, imported prices display a short-run asymmetry, with depreciations eliciting stronger responses than appreciations of comparable size. Third, ERPT is shock-dependent: monetary policy shocks generate the strongest and most persistent pass-through, underscoring the importance of the exchange rate channel in Armenia’s monetary transmission mechanism. The results remain consistent across methods, reinforcing their robustness and offering policy-relevant insights for small, dollarized economies pursuing inflation targeting under external volatility.