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Ara Stepanyan, Ms. Era Dabla-Norris, and Ashot Anatolii Mkrtchyan
This paper develops a small open economy dynamic stochastic general equilibrium (DSGE) model of the Armenian economy. The structure of the model is largely motivated by recent developments in DSGE modeling, with key extensions to incorporate specific structural characteristics of the Armenian economy. The resultant model can be used to simulate monetary policy paths and help analyze the robustness of policy conclusions. The paper tests the model’s properties on Armenian data, demonstrating that the main stylized features relevant for monetary policy making are well captured by the model.
Ara Stepanyan, Ms. Era Dabla-Norris, and Ashot Anatolii Mkrtchyan

Armenian Central Bank adopted inflation targeting in 2006. To support the implementation of monetary policy, an analytical framework was established around a small open economy quarterly projections model (QPM). 2 The QPM captures highly aggregated and stylized relations in the Armenian economy necessary to explain fluctuations in output, inflation, the exchange rate, and interest rate. The model consists of simple structural equations, and largely deals with deviations of the main macroeconomic variables from their long-term trends (“gap” model). While the simplicity

International Monetary Fund. Middle East and Central Asia Dept.

calibrated to match the key characteristics and stylized facts of the Armenian economy. These include, for instance, key “great ratios” in the economy (labor share, structure of GDP, remittances/GDP, etc.), structure of government spending and revenues, or the monetary policy regime. The model also benefitted from the previous work of IMF staff with the Central Bank of Armenia staff and the findings of past IMF technical assistance. The Annex 1 describes the main elements of the MCDMOD module of FSGM. FSGM itself is documented in Andrle et al. (2015) . 5. The policy

International Monetary Fund. Middle East and Central Asia Dept.
Real GDP growth rebounded strongly in 2021 and early 2022, driven by a pickup in construction, trade, and services activities, and benefiting from strong policies and a gradual improvement of the pandemic, notwithstanding its various waves. In 2022, the budget aimed at continuing a gradual fiscal consolidation, while still providing temporary and targeted support to the economy, and monetary policy aimed at continuing its tightening cycle that started in late-2020 to cool down inflation. The favorable near-term outlook, however, is set to be interrupted by the spillovers from the war in Ukraine and the sanctions against Russia, given Armenia’s economic links and exposure to the Russian economy. Growth has been revised down markedly this year, while inflationary pressures are expected to persist, keeping inflation above the Central Bank of Armenia’s (CBA) target in 2022.