CC BY
11DOI: 10.29141/2658-5081-2022-23-1-2 JEL classification: E61, E50, O11
Mariam A. Voskanyan Russian-Armenian University, Yerevan, Armenia
Government policy to maintain macroeconomic stability: The case of Armenia
Abstract. Macroeconomic regulation has always been one of the most pressing economic issues. The paper intends to assess the impact of the government policy on maintaining macroeconomic stability on the economic growth in the Republic of Armenia. Methodologically, the study relies on the propositions of economics; applies methods of qualitative and statistical analysis, observation and synthesis. The data are sourced from the National Statistics Service of the Republic of Armenia and the Central Bank of the Republic of Armenia. The paper considers the key theoretical approaches to the policy on maintaining macroeconomic stability and the major tools of its implementation, identifies positive and negative consequences of this policy for Armenia's economic growth. The analysis of the monetary, currency, and fiscal policies of the country proves that the policy of macroeconomic stability adopted during the last 10 years leads to the decreasing rates of economic growth, especially in the long run. The ambiguity of the said policy in terms of the efficiency and balance of its outcomes confirms the necessity to reconsider its relevance in the emerging economies.
Keywords: macroeconomic policy; fiscal policy; monetary policy; macroeconomic stability; economic growth.
Acknowledgements: The paper is funded within the framework of the research project "The policy of financial regulation in the Republic of Armenia: the assessment and development prospects" by the subsidy of the Ministry of Science and Higher Education of the Russian Federation on financing the research and development at the Russian-Armenian University.
For citation: Voskanyan M. A. (2022). Government policy to maintain macro-economic stability: The case of Armenia. Journal of New Economy, vol. 23, no. 1, pp. 24-42. DOI: 10.29141/2658-5081-2022-23-1-2 Received November 19, 2021
Introduction
To achieve sustainable economic growth countries are looking for optimal ways to implement macroeconomic policy. The most common approaches include maintaining macroeconomic stability. However, the experience of recent decades has shown that in emerging economies this approach often does not lead to the desired result, and is also fraught with negative consequences for the economy.
The purpose of the study was to assess the policy tools for maintaining macroeconomic stability in terms of ensuring sustainable economic growth.
The key objectives of the study include:
(i) reviewing fundamental approaches to the policy on maintaining macroeco-nomic stability;
(ii) identifying major tools of government regulation in terms of the implementation of the indicated type of policy;
(iii) analysing and assessing the policy on maintaining macroeconomic stability for Armenia.
The policy into the focus is based in the idea that by maintaining stability in the macroeconomic environment with the most important indicators kept at a certain level, it is possible to ensure economic growth in the long run. At the same time, mac-roeconomic stability is achieved primarily by keeping a low level of inflation.
Keynes, Smith, Ricardo, Say, Pareto, Mill, Marx, Marshall, Fischer and many other economists devoted their works to the problems of macroeconomic stability. The theories considering this phenomenon define it as a sustainable economic development in the absence of crises. However, as mentioned above, stability means maintaining key macroeconomic indicators at the same level. Thus, macroeconomic policy is reduced to solving this problem both in the short and long term.
Literature review
In most cases, a stable price level is put at the forefront of economic policy as a guarantor of macroeconomic stability (see, for example, [Haller, 2020]). Keynes understood macroeconomic stability as a combination of external and internal equilibrium, which, in turn, determines full employment, stable economic growth and low inflation [Ocampo, 2005]. Thus, the mechanism for achieving economic growth is ensuring full employment in terms of fiscal policy and low prices in terms of monetary policy.
Modern theories (cf.: [Benassy-Quere et al., 2010], [Wolf, Resnick, 2012] add to these criteria indicators of the state budget (public debt and budget deficit) [Roszko-Wojtowicz, Grzelak, 2020], as well as monetary policy. The basic criteria of macroeco-nomic stability are clearly reflected in the principles of the integration unions. Thus,
these criteria ("Maastricht convergence standards") are indicated in the Treaty on European Union of 19921. They include a low and stable inflation; a low long-term interest rate for stable inflation expectations; a low public debt-to-GDP ratio (no higher than 60 % of GDP); a low public budget deficit (no higher than 3 %), as well as a stable exchange rate2.
In addition, the criteria for macroeconomic stability for the EAEU countries are quite precisely formulated in Article 63 of the Treaty on the Eurasian Economic Union as of May 29, 20143: the budget deficit no more than 3 %, the public debt no more than 50 % and a stable price level.
Thus, the major tools for achieving macroeconomic stability are fiscal, monetary and currency policies. The mechanisms of implementation of these tools are summarised in Table 1. In all cases, a restrictive policy is envisaged in the conditions of economic growth, focused on the long term.
Table 1. The policy on maintaining macroeconomic stability: tools, mechanisms and results
Tool Mechanisms Result
Restrictive monetary policy (inflation targeting) Interest rate on refinancing operations. Reserve requirement. Open market operations Reduction of the money supply. Stable low price level
Restrictive currency policy Currency interventions. Currency restrictions Reduction of the money supply. Stable exchange rate of the national currency
Restrictive fiscal policy Regulation of public debt. Budget deficit control measures Increasing the tax burden. Stable level of budget expenditures
Further, we consider each type of policy.
Restrictive monetary policy. This policy implementation in a situation of economic increase is based on the idea of the negative impact of inflationary pressure on economic growth. According to Friedman [1968], monetary policy can and should create such conditions that money itself does not have a negative impact on the country's
1 Treaty on European Union - Final Act. 1992. The euro: explanatory notes by Directorate General II - Economic and Financial Affairs. Euro Papers, no. 17. February, 1998.
2 The experience of the countries in the euro area shows that the lack of unification of fiscal regulation in the context of a single monetary policy led to a general imbalance in macroeconomic regulation and deprived individual economies of the ability to respond effectively to external shocks. In addition, the criteria underlying the economic criteria for joining the EU do not currently reflect the real indicators of fiscal policy in the euro area. Thus, the effectiveness of such criteria can be questioned.
3 The Treaty on the Eurasian Economic Union (signed in Astana on May 29, 2014). https://www.arlis.am/docu-mentview.aspx?docID=95276. (In Russ.)
economy. In other words, the equilibrium price level is the guarantor of macroeconomic stability, and the task of ensuring a stable inflationary background should be crucial for monetary authorities.
The scientists quite controversially characterise the impact of monetary regulation on economic growth in terms of maintaining stable and low prices. In general, opinions differ between two ideas: on the one hand restraining the price level in the long run causes economic growth, but on the other hand the pursued policy, on the contrary, leads to a recession and negative consequences for growth.
The arguments in favour of the first idea note that inflation itself is not a factor of macroeconomic destabilisation, but it can be considered a sign of it, especially in conditions of high prices or volatile inflation, which poses a threat to economic growth [Corden, 1990]. Some authors point out that stable prices contribute to economic growth by creating a corresponding stable macroeconomic environment [Levine, Zervos, 1993]. Others believe that with the help of monetary policy tools aimed at reducing the price level in the country, monetary authorities can stimulate economic growth [Annicchiarico, Rossi, 2012]. One of the studies proves that if, with the help of monetary policy, it is possible to ensure equality between the inflationary expectations of economic entities and real inflation, then this policy, in all likelihood, will not have any impact on investment decisions, which, in turn, will indirectly ensure sustainable economic growth in the long run. At the same time, monetary policy cannot influence the potential level of gross output. Therefore, depending on whether the economy is functioning at a level above or below its potential, a choice can be made between expansionary and restrictive monetary policy. At the same time, recent economic studies have shown that indicators of long-run economic growth are poorly correlated with changes in inflation indicators [Coats, 2000].
For example, the impact of forecasted and unpredictable inflation on economic development has the greatest importance. Empirical data show that high levels of inflation are associated with volatile and consequently less predictable inflation [Barro, Sala-i-Martin, 1995; Barro, 2013]. Friedman and Schwartz [1963] note that economic growth is achievable with both rising and falling prices if their expected increase is moderate and predictable. According to another opinion, in the long term inflation leads to a negative effect, whereas in the medium and short term its impact on economic growth is contradictory [Bencivenga, Smith, 1991; Allen et al., 2002]. It is clear that with a temporarily high inflation, the economic growth decreases, but then, after the price level stabilises, it returns to normal.
Bruno and Easterly [1998] found that in most cases under the inflation crisis, economic growth was higher than the global average and lower than a similar 'pre-crisis' indicator. At the same time, the costs of inflation - uncertainty, relative instability of
prices and a decrease in reliable information about them, deterioration of credit conditions - become significant only at relatively high levels of inflation. In other cases, it grows due to various supply and demand shocks and does not demonstrate a clear interdependence. In addition, the economic growth increases with a decrease in the inflation if its level exceeds 40 %; in other cases, there is no correlation between an increase in the economic growth and the level of inflation.
Other authors agree with this opinion, noting that it is currently difficult to draw conclusions about the positive or negative impact of low and stable growth of the inflation [Stiglitz, 2003]. Researchers concur that no economy can function successfully under hyperinflation, but they have not reached a consensus on the results of reducing inflation [Sachs, 1996]. There is no evidence that a decreasing inflation provides benefits comparable to the costs, and some economists even believe that the desire to make inflation too low leads to negative consequences. Bullard and Keating [1995] point out that in an economy with initially low rates of money creation, a rise in their growth leads to a rise in long-term real growth, but if the money growth is initially high, the consequences will be negative.
According to Fischer [1993], the negative relationship between inflation and economic growth is expressed in a reduction in investment and a decrease in productivity growth. De Gregorio [1993] adds to these negative factors an increase in the cost of labour, which leads to a reduction in employment and GDP.
The above arguments determine the commitment of central banks to a restrictive policy in the field of monetary regulation for at least the last 30 years. The prevalence of the policy on maintaining a stable price level is evidenced by the dynamics of the number of countries targeting inflation (Figure 1), and the position of the International Monetary Fund.
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■ Developed economies ■ Emerging economies Fig. 1. Inflation targeting in developed and emerging economies1
1 Source: own representation based on IMF (2020). Annual Report on Exchange Arrangements and Exchange Restriction. www.imf.org.
On the other hand, the statement that price restraint can negatively affect economic growth in the long run is also supported by significant arguments.
Thus, Cecchetti and Ehrmann [2002], studying the effects of inflation targeting in emerging economies, came to the conclusion that during periods of supply shocks, monetary policy could keep either inflation or economic growth within long-term target levels.
According to the findings of a number of studies, the policy of targeting inflation contributed to reducing the volatility of economic growth, i.e. smoothed out fluctuations in the corresponding indicator. However, there was no noticeable impact of monetary policy on GDP growth [Svensson, 2010].
Other papers have shown that the impact of inflation targeting policy on the pace and volatility of economic growth is far from unambiguous. Depending on the research method, the selected time period and the sample of countries studied, conclusions about the role of monetary policy in economic development may be opposite. However, it is obvious that in an emerging economy, maintaining a stable price level to the detriment of other goals of macroeconomic policy in the long term invariably leads to a recession.
Restrictive currency policy. Since the purpose of macroeconomic regulation is to maintain macroeconomic stability, then currency policy should be implemented exclusively within this priority. In terms of currency regulation, in this case, the government should place emphasis on ensuring the stability of the national currency. Generally speaking, a tight currency policy reduces uncertainty about both the exchange rate and the level of interest rates in the country. So, according to Goldstein [2002], the devaluation of the national currency in nominal terms can only lead to an increase in the overall price level in the country, and not to an increase in real GDP.
Gylfason [2000] notes that the policy of a national currency peg ensures macroeconomic stability and contributes to the growth of foreign trade turnover. In addition, a stable exchange rate restrains the growth of the price level in the country, which, according to the author, is also a positive factor for long-term economic growth.
De Grauwe and Schnabl [2004] prove that the country's economy growth as a result of the currency peg policy is due to two reasons. Firstly, reducing uncertainty about the exchange rate stimulates foreign trade. Secondly, an increase in confidence in the country's currency reduces the risk premium on interest rates. Low interest rates, in turn, contribute to the investment boost to the local economy and activate domestic consumption. This position encourages monetary authorities to implement strict currency regulation in terms of maintaining macroeconomic stability. Two tasks are performed at once: ensuring a stable price level and maintaining certainty, which means economic stability with regard to major macroeconomic indicators.
According to another point of view, the impact of the currency regime on economic growth depends primarily on the performance of monetary policy. Thus, any currency regulation regime can positively affect the country's economy only if a monetary anchor (monetary aggregates or inflation) is used. Without this measure, any currency policy, except for the policy of national currency pegging, will lead to a decrease in the national economy growth [Bailliu, Lafrance, Perrault, 2003]. However, in our opinion, this approach does not allow the economy to adapt flexibly enough to the changing external market, which ultimately leads to distortion of price signals and inefficient resources distribution in the country.
In this context, McKinnon and Schnabl [2004] cite the example of the Asian crisis of 1997-1998. Before the crisis, most East Asian countries applied a policy of pegging the national currency to the US dollar in order to ensure macroeconomic stability in the region. In the first years, this really contributed to the rapid growth of the local economies' attractiveness and the foreign investment inflow. However, afterwards, the national currencies pegging to the US dollar with significantly higher interest rates in relation to the rates of the USA and Japan increased speculative trading in the financial market, entailing risks for the banking system of the region. А relatively less developed securities market and the short-sighted policy of banks to use short-term funds for long-term investment also contributed to greater instability.
Economists note that the national currency pegging stimulates the inflow of investments into the country, but impedes a faster increase in labour productivity [Collins, 1996; Ghosh et al. 1996; Garofalo, 2005]. A significant strengthening of the national currency leads to a decrease in the value of the country's net exports as a result of a reduction in savings and exports. This effect was particularly pronounced in emerging economies, and the impact on GDP was insubstantial, since the decrease in net exports was compensated by an increase in domestic demand. It has been determined that, ceteris paribus, the strengthening of the national currency reduces the growth of gross output only in emerging economies [Kappler et al., 2013]. Other authors arrived to the same conclusion [Bussiere, Lopez, Till, 2015].
McLeod and Mileva [2011], studying the impact of a tight currency policy on economic growth, found that the lower the level of per capita income in a country, the stronger the currency depreciation affects productivity. It is worthy of note that a tight currency policy applied in a situation of active interaction with external markets ensures the stability of the price level, but at the same time causes an economic vulnerability due to external shocks [Husain, Mody, Rogoff, 2004].
In summary, the macroeconomic regulation to maintain stability raises quite a lot of doubts from the viewpoint of ensuring sustainable economic growth.
Restrictive fiscal policy. When macroeconomic policy aims to maintain stability, fiscal policy acts as a tool that smooths the cyclical nature of the economy. The persisting restrictive policy leads to an economic volatility reduction and the stability preservation in the long run. Since the focus is on maintaining the stability of the price level, fiscal policy becomes a tool to perform this task. Following the example of monetary and currency policies, it should also be aimed at reducing the money supply in order to avoid excessive inflationary pressure. Thus, the task of fiscal regulation is to reduce government expenditure against an increase in the tax burden, which in the medium and long term leads to a reduction in the money supply, which means maintaining a stable price level. In many cases, the indicated type of policy, combined with a restrictive monetary policy, causes not only price stability, but also the deflationary processes, which cannot but have a negative impact on economic growth.
Some authors confirm that a prompt response of fiscal policy to the economic volatility can be successful in terms of ensuring macroeconomic stability [Kumhof, Laxton, 2009]. Many countries focus on fiscal regulation while achieving this stability because of unavailability (currency unions, official dollarisation, rigid exchange rates, etc.) or insolvency (weak development of financial markets, negative inflation expectations, etc.) of monetary tools [Spilimbergo and al., 2008]. In some researchers' view, one of the factors contributing to the positive impact of fiscal policy on macro-economic stability is the low level of interest rates [Blanchard, Summers, 2017].
Fiscal regulation can ensure macroeconomic stability using three main channels.
Built-in stabiliser of the tax system. Changes in tax revenues depending on the cyclical nature of the economy automatically affect the balance of gross national savings and leads to macroeconomic stability [Blinder, Solow, 1974]. Most studies of the built-in stabilisers impact on macroeconomic stability are focused on developed economies. Many of these papers (for example, [Shkolnyk et al., 2020]) are based on the fundamental ideas of Gali [1994] and focus on the negative relationship between the output volatility and the government involvement in the economy as an indicator of the cyclical sensitivity of the budget balance.
Government expenditure. In order to smooth the cyclical nature and ensure macroeconomic stability, the state budget may increase or reduce the expenditure component. The scientists note that in neoclassical models of macroeconomic equilibrium, a short-run increase in government expenditure, which is financed by an increase in public debt, causes an increase in aggregate output, but may lead to a reduction in the investment and household consumption. In the case of a long-run increase in government expenditure, there will be an increase in investment, but household consumption will decrease [Baxter, King, 1993].
Regulation of public debt. The impact of public debt on economic growth and macroeconomic stability is quite contradictory. On the one hand, according to neoclassi-cists, if the inflow of foreign currency through external borrowings contributes to the accumulation of capital, then these borrowings will lead to economic growth. On the other hand, the external public debt hinders economic growth, since it restrains the growth of incomes in the economy [Krugman, 1988]. When the state budget deficit grows at higher rates than GDP, an increase in public debt in the long run leads to a reduction in investment and savings and an economic slowdown. Nevertheless, some authors question the effectiveness of fiscal policy in terms of achieving macroeconomic stability [Van der Ploeg, 2005] and note that when shocks relate to supply-side factors, excessive fiscal activity can lead to destabilisation in the macroeconomic environment [Kumhof, Laxton, 2009].
Research methods
The key objective of the study was to analyse the government policy on maintaining macroeconomic stability in emerging economies. At the first stage of the research, we reviewed scientific literature to summarise the major pros and cons of implementing the indicated type of policy in emerging economies. At the next stage, monetary, currency and fiscal policies in Armenia were analysed in terms of their conformity with the policy on maintaining macroeconomic stability, as well as the impact of these policies on economic growth.
The most important indicators characterising these policies were their targets, as well as indicators identified in the literature review (Table 2).
To examine monetary policy we looked at the dynamics of price changes and the nominal anchor of the Central Bank of the Republic of Armenia (CBRA) within the inflation targeting, as well as the dynamics of changes in major monetary policy tools - reserve requirement and interest rate on refinancing operations.
Table 2. Macroeconomic regulation: tools and indicators
Tools Indicators
Restrictive monetary policy (inflation targeting) Nominal anchor of monetary policy. Interest rate on refinancing operations. Reserve requirement
Restrictive currency policy Dynamics of the Armenian dram exchange rate. Currency interventions
Restrictive fiscal policy Tax revenues. State budget expenditures. Public debt, % of GDP
The indicator characterising the currency regulation in Armenia was the dynamics of the exchange rate, both monthly and daily.
Finally, the fiscal policy of Armenia was examined from the viewpoint of changes in tax revenues, the expenditure component in the Republic of Armenia's state budget, as well as the dynamics of public debt (% of GDP).
Maintaining macroeconomic stability in Armenia
Macroeconomic policy built upon the theoretical ideas presented above, adopts an approach to maintaining macroeconomic stability. In recent decades, this type of policy has been applied in many countries, including emerging economies, and now it is already possible to assess its consequences for economic growth.
Figure 2 shows the year-on-year dynamics of GDP and economic growth in Armenia, which demonstrates several stages of a considerable decline in growth (the last one was in 2008). At the same time, the recovery growth allowed reaching the same volume of GDP as in 2008 only after 10 years. Thus, we can state a rather long slowdown in Armenia's economic growth. As a consequence, we see a reduced level of per capita income, an increased poverty level and many other negative socioeconomic effects.
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Fig. 2. GDP and rates of economic growth in Armenia, 1990-20211
In our opinion, ineffective macroeconomic policy on maintaining stability contributed significantly to the reduction in economic growth. This, in turn, led to the restrictive macroeconomic policy implementation throughout the entire period of
1 Source: own representation based on the data from National Statistics Service of the Republic of Armenia. www.armstat.am.
economic recession. In this regard, we analyse the major tools of macroeconomic regulation in order to determine the direction and effectiveness of the pursued policy.
Monetary policy of the CBRA. As shown in the theoretical review, the practice of applying the inflation targeting policy is based on maintaining a stable price level, which, in turn, ensures macroeconomic stability in the country. Armenia has been implementing an inflation targeting regime since 2006 to the present. The effectiveness of the monetary policy of the Republic of Armenia's Central Bank under this regime can be assessed by the dynamics of core and cumulative inflation over the past 15 years. As shown in Figure 3, for more than half of the period under review, the dynamics of the consumer price index (CPI) targeted by the Republic of Armenia's Central Bank does not fall within the established targets. We also note that during the entire period, the Republic of Armenia's Central Bank pursued a policy alternating between maintaining macroeconomic stability and restrictive monetary regulation.
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Fig. 3. Cumulative and core inflation in Armenia: growth rates, %*
This is evidenced by the dynamics of change in the major tools of monetary regulation that have been used by the CBRA over the past twenty years (Figure 4). Since the beginning of 2012, the monetary authorities of Armenia have repeatedly pursued the policy of 'expensive money' in order to restrain the money supply growth and, as a
1 Source of the Figures 3-6: own representation based on the data of the Central Bank of the Republic of Armenia. www.cba.am.
result, avoid noticeable inflationary pressure. In particular, a similar rigidity is clearly manifested with the reserve requirement.
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In general, the restrictive policy led to periods of deflation starting from 20132014. Overestimated inflation rates can be observed only at the end of 2021. Comparing the CPI dynamics with GDP growth allows us to note that in fact, from 2008 to 2019, there was a recession in the Armenian economy. Accordingly, we argue that low inflation went together with a slowdown in economic growth during the crisis, as well as in the post-crisis years.
At the same time, economic activity in 2021 is accompanied by price growth, which indicates the lack of macroeconomic stability.
Currency policy of the CBRA. Currency regulation in Armenia also stands for the principle of maximum macroeconomic stability, which is clearly demonstrated by the long-run policy of the Republic of Armenia's Central Bank to maintain the exchange rate of the national currency (Figure 5). Until 2021, the monetary authorities actively intervened in the foreign exchange market in order to keep the exchange rate at a certain level [Sandoyan, Voskanyan, Galstyan, 2018a, 2018b; Voskanyan, Galstyan, 2021]. As a result, the Republic has experienced three currency crises, accompanied by a sharp collapse of the Armenian dram exchange rate against the US dollar.
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Figure 6 shows that the average volatility of the exchange rate is within 5 %, including periods of political instability, as well as military actions, which should have caused instability in the foreign exchange market. Thus, the fairly stable dynamics of the Armenian dram exchange rate indicates that the regulation by the monetary authorities was significant.
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Fig. 6. The exchange rate of the US dollar to the Armenian dram, daily
Fiscal policy in Armenia. Armenia's fiscal policy is also focused on maintaining macroeconomic stability. At the same time, it has mostly a restrictive character, especially during periods of crisis, which also indicates the procyclical nature of fiscal regulation.
The dynamics of tax revenues as a percentage of GDP indicate a fairly high level of taxation and an increase in the tax burden on the economy during the crisis periods of 2008-2009 and 2014-2015. The crises, in particular, lead to a boost of revenues from direct taxes (Figure 7). In addition, we should note that fiscal policy as a whole is weakly elastic to economic cycles, which to a certain extent does not allow us to characterise fiscal policy as a policy on maintaining macroeconomic stability. Thus, it is quite difficult to give a clear assessment of tax policy in this perspective.
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Fig. 7. Tax revenues and annual GDP growth rates, 1996-20201
The expenditure state policy has a slightly different character (Figure 8). In particular, if tax policy in crisis periods is not reduced to a stimulating policy, but rather has a restrictive character, i.e. it is more procyclical, then expenditure policy in most cases is countercyclical, which determines its focus on maintaining macroeconomic stability.
1 Source for Figures 7-9: own representation based on the data from National Statistics Service of the Republic of Armenia. www.armstat.am.
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Fig. 8. Government expenditures and annual GDP growth rates, 1996-2020
The last element of the policy on maintaining macroeconomic stability is the regulation of public debt. When it grows, as it was noted in the theoretical review, the possibilities of the state budget to stimulate the real sector are expanding. Figure 9 shows that since 2008, both the internal and external public debt of Armenia has tended to increase. At the same time, sharp jumps in the level of public debt in relation to GDP are observed precisely during the crises of 2007-2008, 2014-2015 and 2020, which determines the countercyclical policy of the state.
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However, in the long run, a raise in public debt in terms of external borrowing leads to a reduction in investment and, respectively, a slowdown in economic growth. In the case of Armenia, this effect is observed within 2008- 2019.
Conclusion
To bring the paper to a close, we summarise the findings of the theoretical and practical analysis of the policy on maintaining macroeconomic stability. In the first place, we should point to a rather ambiguous impact of the said policy on the country's economic growth and development, which is reflected in the institutions soundness, the general political situation, the ability of governments to reform, etc. Moreover, in many respects, this policy, which primarily pursues populist goals, especially in the field of monetary regulation, causes a slowdown in economic growth.
Given the fiscal dominance, the majority of the macroeconomic regulation tools applied to achieve the progressive development of the economy imply curbing the growth of the money supply. Indeed, in the medium term, this measure allows ensuring low inflation and stability of the exchange rate, and therefore, the macroeconomic stability. However, in the long term, its use will inevitably damage the economy, which is confirmed by Armenia's experience.
According to the results of our research, the sixteen-year implementation of a policy on maintaining macroeconomic stability in this country has led to a slowdown in economic growth. We believe that the chosen strategy should be abandoned in favour of the course for increasing the productivity of the economy. Undoubtedly, the specifics of such a transition require separate consideration, which we plan to focus on in our further studies.
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Information about the author
Mariam A. Voskanyan, Dr. Sc. (Econ.), Associate Prof., Head of Economics and Finance Dept., Russian-Armenian University, 123 O. Emina St., Yerevan, 0051, Armenia Phone: +3 (741) 021-14-66, e-mail: mariam.voskanyan@rau.am
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