An Analytical Framework to Support a Prudent Risk Management Approach in Armenia

Ani Asoyan () and Jared Laxton ()
Additional contact information
Ani Asoyan: Central Bank of Armenia
Jared Laxton: AI-powered Learning

No WP-2026-03, Working Papers from Central Bank of Armenia

Abstract: Since the pandemic, the global economic environment has been characterized by elevated uncertainty driven by overlapping shocks. Under these circumstances, the CBA adopted the Prudent Risk Management Approach to Price Stability (PRMAPS) in 2024, designed to better incorporate uncertainty and nonlinearities while supporting monetary policymaking as a risk-management exercise. PRMAPS adds several improvements to the previous framework, including policy navigation in uncertain environments, the growing importance of tail-risk events, and the role of central bank credibility in influencing expectations and the effectiveness of monetary policy. To support this framework, the paper introduces the Endogenous Credibility (EndoCred) model as a workhorse tool for scenario-based policy analysis. Building on the canonical Quarterly Projection Model (QPM), EndoCred extends the traditional framework by incorporating endogenous monetary policy credibility, nonlinear inflation dynamics, and richer transmission mechanisms, including the role of long-term interest rates as well as credibility-driven risk premium and dollarization effects relevant for small open economies. By allowing credibility to evolve in response to policy performance, the model endogenizes its impact on inflation expectations and policy transmission. These features make the model particularly suitable for economies exposed to volatile external conditions. The framework provides a practical analytical foundation for implementing risk-based monetary policymaking and improving the assessment of policy trade-offs under uncertainty.

Keywords: Central Banking; Credibility; Nonlinearities; Small Open Economy; Monetary Policy; Macroeconomic models (search for similar items in EconPapers)
JEL-codes: C53 E37 E52 E58 F41 (search for similar items in EconPapers)
Pages: 85 pages
Date: 2026-09
New Economics Papers: this item is included in nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cba.am/file_manager/Analytical-materials/EndoCred.pdf First version, September 2026 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ara:wpaper:wp-2026-03

Access Statistics for this paper

More papers in Working Papers from Central Bank of Armenia Contact information at EDIRC.
Bibliographic data for series maintained by Davit Hovhannisyan ().