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Analysis of the Relationship between Inflation, Exchange Rate and Household Expenditures in the Russian Economy Using Wavelet Analysis

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  • Leonid A. Serkov

Abstract

This article presents an analysis of the relationship between the inflation rate, the ruble to the US dollar exchange rate and household spending in the Russian economy. This study used econometric tools and the multivariate wavelet analysis (MWA) method, which includes multiple and partial wavelet coherence to analyze the relationship between the analyzed variables in different frequency and time ranges, partial phase difference and partial wavelet gain coefficient to estimate the magnitude of the relationship. In fact, the MWA method is a regression in the frequency-time range. The results obtained by means of multivariate wavelet analysis, on the one hand, coincide with the results of the econometric method, and on the other hand, show the advantages of multivariate wavelet analysis over econometric analysis due to the frequency-time localization of time series features. It is shown that household expenditures in both the short and long term are a more important determinant compared to the exchange rate in the dependence of the inflation rate on these variables. Of particular interest are the results obtained by the MWA method for the current time period characterized by the presence of sanctions imposed on the Russian economy by unfriendly countries. In particular, in the current period from 2022 to the second quarter of 2024, there is a short-term and medium-term two-way causality between the inflation rate and household expenditures. At the same time, the partial wavelet gain coefficient during this period is constantly increasing and reaches a maximum in the second quarter of 2024. That is, the mutual elasticities of the inflation rate by expenditures and household expenditures by inflation are constantly increasing. The results of the analysis of high-frequency cycles are of interest to short-term decision makers. The results obtained for medium and low-frequency cycles are of interest to those developing plans for the medium and long term.

Suggested Citation

  • Leonid A. Serkov, 2025. "Analysis of the Relationship between Inflation, Exchange Rate and Household Expenditures in the Russian Economy Using Wavelet Analysis," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 24(1), pages 59-90.
    • Handle: RePEc:aiy:jnjaer:v:24:y:2025:i:1:p:59-90
    DOI: https://doi.org/10.15826/vestnik.2025.24.1.003
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    More about this item

    Keywords

    autoregressive distributed lag model; multivariate wavelet analysis; multiple and partial coherence; partial phase difference; partial wavelet gain coefficient;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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