CEU Electronic Theses and Dissertations, 2014
| Author | Patvakanyan, Hovsep |
|---|---|
| Title | VAR Analysis of the monetary transmission mechanism with factor of labor migration case of Armenia |
| Summary | This contribution develops the VAR model to estimate the monetary transmission for the Armenian economy based on the quarterly data of the past decade consistently following the steps proposed in the paper by Stock and Watson (2001) on vector auto regressions. The results of the estimation indicate existence of the “price puzzle” with the inflation increasing in response to the monetary tightening. To address the issue it is suggested to account for the migration factor in the model given the high rate of migratory flows from Armenia to Russia. To show the significance of accounting for the latter factor when making decisions on the monetary policy implementation, the traditional RBC model of indivisible labor proposed by Hansen is considered with further introduction of labor exports. The model is parameterized in the way to match core features of the Armenian economy. In the framework of the model, foreign component, particularly construction-workers in Russia, is introduced as a part of the labor supply along with the domestic component. As results of the estimation show, positive wage shock on the Russian labor market, as opposed to the productivity shock, has a bigger and a more long-lasting effect on the Armenian economy, which reinstates the necessity of introducing the migration factor into the VAR model. Rise of oil prices which entails increase in the world commodity prices has, further, been taken into account as the indicator of economic activity in the foreing state . And it is believed that the rapid growth of remittances is mainly due to rising energy prices because the latter has raised incomes and prices in the Russian non-trade sector in which most of the Armenian labor migrants are working. Ultimately, the issue of the price puzzle is overcome by introducing the exogenuos variable of oil prices index and nominal exchange rate into the VAR specification. |
| Supervisor | Istvan Konya |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2014/patvakanyan_hovsep.pdf |
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