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The primary objective of the paper is to evaluate the role of monetary policy and foreign exchange policy in achieving long-term growth of the Armenian economy within the framework of the inflation targeting regime. Our research proves that a large part of regulatory mechanisms (including monetary policy) are distorted and operate inefficiently. At the same time, in the context of an emerging economy, this is typically foreign exchange regulation that can give impetus for supporting long-run growth of the economy. The problem of central banks intervening in foreign exchange markets and the process of forming the exchange rate of the national currency is at the heart of the debate over optimal approaches to foreign exchange policy. Our study illustrates that in emerging markets, along with a substantial correlation between exchange rates and inflation, as well as the lack of efficient instruments that central banks have at their disposal, interventions in the process of forming exchange rates of national currencies are inevitable, which significantly deepens institutional insolvency and distortions of market mechanisms in the economy. Thus, the problem of foreign exchange regulation is particularly acute in developing economies that among other s include the Republic of Armenia. The paper considers the core mechanisms of monetary policy and foreign exchange policy that affect economic growth rates in Armenia in order to assess positive and negative aspects of this influence and provide relevant recommendations. We perform the analysis that indicates considerable distortions and inefficiency of foreign exchange regulation in Armenia, which affects both inflationary processes and economic growth rates of the country.

Keywords: MONETARY POLICY, FOREIGN EXCHANGE POLICY, ECONOMIC GROWTH, INFLATION TARGETING

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