Exchange Rate Pass-Through to Inflation in Armenia: A Disaggregated and Shock-Based Analysis

This paper investigates exchange rate pass-through (ERPT) to inflation in Armenia using reduced-form estimation and a structural VAR model. Using monthly and quarterly data from 2008–2023, it provides estimates of both average and shock-specific ERPT. The results reveal substantial heterogeneity across CPI components, with stronger pass-through for tradables and imports. ERPT primarily occurs through the U.S. dollar exchange rate, supporting the dominant currency paradigm. Monetary policy shocks generate the highest pass-through, underscoring the exchange rate channel’s importance in emerging economies. The findings offer broader insights for small, dollarized economies navigating inflation targeting under external volatility and credibility constraints.