In Search Of A Dramatic Equilibrium: Was The Armenian Dram Overvalued?

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Executive Summary

Armenia's real effective exchange rate has appreciated rapidly in recent years, which has led to concerns about a possible overvaluation of the dram. During 2005-2007, real appreciation was accompanied by nominal appreciation, and was mostly the result of large foreign exchange inflows, notably remittances and FDI, as well as high export prices, notably for copper and molybdenum. In 2008, however, the Central Bank of Armenia (CBA) changed its de facto exchange rate regime from a managed float without a predetermined path to a soft peg, and kept the nominal rate vis-?-vis the U.S. dollar within a very tight band until the recent dram devaluation in early March 2009.

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