Econometric Analysis of the Relationship of Inflation and Macroeconomic Varia-bles in the RA

Abstract

In this study the relationships between inflation, economic growth, exchange rate and personal remmitancies from abroad in Armenia were estimated. Based on quarterly data of 1996–2023 years the study identifies and evaluates the relationships between the macroeconomic variables using vector autoregressive analysis (VAR) model. The dynamic impact of random shocks on these variables are also estimated. According to the estimations, over the short term period inflation has a positive impact on economic growth: 1% inflation in the current quarter contributes to 0.6% economic growth five quarters later. The remittances from abroad have a positive impact on inflation: a 1% increase in remittances from abroad in the current quarter will contribute to an increase in inflation by 0.03%. Economic growth has a negative impact on inflation: 1% economic growth will reduce inflation by 0.06% after five quarters.

The Granger Test indicates that economic growth and inflation are causing exchange rate fluctuations. In the short term, economic growth and inflation contribute to the appreciation of the Armenian dram. The effect of the economic growth variable's own shock is long-term, while that of inflation and the exchange rate is short-term. The effects of extrinsic shocks are weak. Based on the results of the dipersion analysis, the contribution of the own shock to the variation of economic growth and inflation is large. And the economic growth and inflation have a significant contribution to the variation of the exchange rate.