IDEAS home Printed from https://ideas.repec.org/a/eeb/articl/v1y2015i3p48-70.html
   My bibliography  Save this article

The Role of Oil Prices, the Real Effective Exchange Rate, and Inflation in Economic Activity of Russia: An Empirical Investigation

Author

Listed:
  • Asset Izatov

    (University of Exeter)

Abstract

In this study we employ empirical analysis to observe the impact of changes in the inflation rate, real exchange rate instability, and oil price fluctuations on the level of real economic activity of Russia. A Vector Autoregressive (VAR) Model was represented and estimated along with Vector Error Correction Model (VECM). There was revealed the existence of long-run cointegration between economic activity, the real effective exchange rate and oil prices over the 01/1995-03/2015 period. In addition, the effect of these factors on the economic output is positive. However, cointegration with inflation was not present in the long-run over the sample period. While in the short-run only the real effective exchange rate had an effect on the economy of Russia. The important feature of this research is that there was revealed an automatic adjustment mechanism in the model, which helps the economy of Russia to reach its equilibrium after the shock. The paper insists on implementation of the relevant reforms to the fiscal policy to diversify and strengthen the economy.

Suggested Citation

  • Asset Izatov, 2015. "The Role of Oil Prices, the Real Effective Exchange Rate, and Inflation in Economic Activity of Russia: An Empirical Investigation," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 1(3), pages 48-70.
    • Handle: RePEc:eeb:articl:v:1:y:2015:i:3:p:48-70
    as

    Download full text from publisher

    File URL: http://eebej.eu/Izatov-A-2015-The-Role-of-Oil-Prices-the-Real-Effective-Exchange-Rate-and-Inflation-in-Economic-Activity-of-Russia-An-Empirical-Investigation-Eastern-European-Business-and-Economics-Journal-13/
    Download Restriction: for print copy of the journal 50 Euro, preview on web - free
    File URL: http://eebej.eu/2015v1n3/48-70.pdf
    Download Restriction: for print copy of the journal 50 Euro, preview on web - free
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mills, Terence C. & Pentecost, Eric J., 2001. "The real exchange rate and the output response in four EU accession countries," Emerging Markets Review, Elsevier, vol. 2(4), pages 418-430, December.
    2. Cunado, J. & Perez de Gracia, F., 2005. "Oil prices, economic activity and inflation: evidence for some Asian countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(1), pages 65-83, February.
    3. repec:cup:cbooks:9781107034662 is not listed on IDEAS
    4. Robert J. Barro, 1998. "Determinants of Economic Growth: A Cross-Country Empirical Study," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522543, December.
    5. Izatov, Asset, 2015. "The Role of Oil Prices, Real Effective Exchange Rate and Inflation in Economic Activity of Russia: An Empirical Investigation," MPRA Paper 70735, University Library of Munich, Germany, revised 2015.
    6. Lütkepohl, Helmut & Poskitt, D.S., 1991. "Estimating Orthogonal Impulse Responses via Vector Autoregressive Models," Econometric Theory, Cambridge University Press, vol. 7(4), pages 487-496, December.
    7. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    8. Brooks,Chris, 2014. "Introductory Econometrics for Finance," Cambridge Books, Cambridge University Press, number 9781107661455, December.
    9. Anonymous, 1963. "International Monetary Fund," International Organization, Cambridge University Press, vol. 17(2), pages 500-504, April.
    10. Guitian, Manuel, 1976. "The effects of changes in the exchange rate on output, prices and the balance of payments," Journal of International Economics, Elsevier, vol. 6(1), pages 65-74, February.
    11. Levine, Ross & Zervos, Sara J, 1993. "What We Have Learned about Policy and Growth from Cross-Country Regressions?," American Economic Review, American Economic Association, vol. 83(2), pages 426-430, May.
    12. Anonymous, 1963. "International Monetary Fund," International Organization, Cambridge University Press, vol. 17(4), pages 976-977, October.
    13. Aliyu, Shehu Usman Rano, 2009. "Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An Empirical Investigation," MPRA Paper 16319, University Library of Munich, Germany, revised 10 Jun 2009.
    14. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    15. Anonymous, 1960. "International Monetary Fund," International Organization, Cambridge University Press, vol. 14(1), pages 210-211, January.
    16. Anonymous, 1959. "International Monetary Fund," International Organization, Cambridge University Press, vol. 13(4), pages 646-648, October.
    17. Rautava, Jouko, 2004. "The role of oil prices and the real exchange rate in Russia's economy--a cointegration approach," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 315-327, June.
    18. De Gregorio, Jose, 1992. "The effects of inflation on economic growth : Lessons from Latin America," European Economic Review, Elsevier, vol. 36(2-3), pages 417-425, April.
    19. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    20. Krugman, Paul & Taylor, Lance, 1978. "Contractionary effects of devaluation," Journal of International Economics, Elsevier, vol. 8(3), pages 445-456, August.
    21. Satya Paul & Colm Kearney & Kabir Chowdhury, 1997. "Inflation and economic growth: a multi-country empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1387-1401.
    22. Galbis, Vicente, 1979. "Money, Investment, and Growth in Latin America, 1961-1973," Economic Development and Cultural Change, University of Chicago Press, vol. 27(3), pages 423-443, April.
    23. Anonymous, 1959. "International Monetary Fund," International Organization, Cambridge University Press, vol. 13(2), pages 316-320, April.
    24. Graeme S. Dorrance, 1963. "The Effect of Inflation on Economic Development (Les conséquences de l'inflation sur la croissance économique) (Los efectos de la inflación sobre el desarrollo económico)," IMF Staff Papers, Palgrave Macmillan, vol. 10(1), pages 1-47, March.
    25. De Gregorio, Jose, 1992. "Economic growth in Latin America," Journal of Development Economics, Elsevier, vol. 39(1), pages 59-84, July.
    26. Rogers, John H. & Wang, Ping, 1995. "Output, inflation, and stabilization in a small open economy: Evidence from Mexico," Journal of Development Economics, Elsevier, vol. 46(2), pages 271-293, April.
    27. Anonymous, 1960. "International Monetary Fund," International Organization, Cambridge University Press, vol. 14(4), pages 668-669, October.
    28. Le Viet Trung & Nguyen Thi Thuy Vinh, 2011. "The impact of oil prices, real effective exchange rate and inflation on economic activity: Novel evidence for Vietnam," Discussion Paper Series DP2011-09, Research Institute for Economics & Business Administration, Kobe University.
    29. Anonymous, 1963. "International Monetary Fund," International Organization, Cambridge University Press, vol. 17(1), pages 281-282, January.
    30. Rattan J. Bhatia, 1960. "Inflation, Deflation, and Economic Development," IMF Staff Papers, Palgrave Macmillan, vol. 8(1), pages 101-114, November.
    31. Benedictow, Andreas & Fjærtoft, Daniel & Løfsnæs, Ole, 2013. "Oil dependency of the Russian economy: An econometric analysis," Economic Modelling, Elsevier, vol. 32(C), pages 400-428.
    32. Anonymous, 1960. "International Monetary Fund," International Organization, Cambridge University Press, vol. 14(2), pages 337-338, April.
    33. Du, Limin & Yanan, He & Wei, Chu, 2010. "The relationship between oil price shocks and China's macro-economy: An empirical analysis," Energy Policy, Elsevier, vol. 38(8), pages 4142-4151, August.
    34. Anonymous, 1960. "International Monetary Fund," International Organization, Cambridge University Press, vol. 14(3), pages 468-472, January.
    35. Magda Kandil, 2004. "Exchange Rate Fluctuations And Economic Activity In Developing Countries: Theory And Evidence," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(1), pages 85-108, June.
    36. Ivanov Ventzislav & Kilian Lutz, 2005. "A Practitioner's Guide to Lag Order Selection For VAR Impulse Response Analysis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(1), pages 1-36, March.
    37. Anonymous, 1959. "International Monetary Fund," International Organization, Cambridge University Press, vol. 13(3), pages 470-471, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Izatov, Asset, 2015. "The Role of Oil Prices, Real Effective Exchange Rate and Inflation in Economic Activity of Russia: An Empirical Investigation," MPRA Paper 70735, University Library of Munich, Germany, revised 2015.
    2. Le Viet Trung & Nguyen Thi Thuy Vinh, 2011. "The impact of oil prices, real effective exchange rate and inflation on economic activity: Novel evidence for Vietnam," Discussion Paper Series DP2011-09, Research Institute for Economics & Business Administration, Kobe University.
    3. Javier G. Gómez-Pineda, 2016. "Inflación de costos: las devaluaciones de los años cincuenta y el brote populista de 1963," Borradores de Economia 924, Banco de la Republica de Colombia.
    4. Javier G. Gómez-Pineda, 2016. "Inflación de costos: las devaluaciones de los años cincuenta y el brote populista de 1963 / Cost-push inflation: the devaluations of the fifties and the 1963 populist outbreak," Borradores de Economia 14204, Banco de la Republica.
    5. Jaganath Behera & Alok Kumar Mishra, 2017. "The Recent Inflation Crisis and Long-run Economic Growth in India: An Empirical Survey of Threshold Level of Inflation," South Asian Journal of Macroeconomics and Public Finance, , vol. 6(1), pages 105-132, June.
    6. Nawalage S. Cooray, 2013. "An Empirical Analysis of Inflation-Growth Nexus in Developing Countries: The Case of Sri Lanka," Working Papers EMS_2013_21, Research Institute, International University of Japan.
    7. Limam Ould Mohamed Mahmoud, 2015. "Consumer price index and economic growth: A case study of Mauritania 1990 - 2013," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 5(2), pages 16-23, February.
    8. André Roncaglia De Carvalho & - André M. Marques, 2018. "Economic Development And Inflation: A Theoretical And Empirical Analysis," Anais do XLIV Encontro Nacional de Economia [Proceedings of the 44th Brazilian Economics Meeting] 41, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    9. Thomas H. Humphrey & Robert E. Keleher, 1984. "The Lender of Last Resort; A Historical Perspective," Cato Journal, Cato Journal, Cato Institute, vol. 4(1), pages 275-321, Spring/Su.
    10. Nana Kwame Akosah & Francis W. Loloh & Maurice Omane-Adjepong, 2018. "Justifying the Adoption and Relevance of Inflation Targeting Framework: A Time-Varying Evidence from Ghana," Papers 1805.11562, arXiv.org.
    11. Simunek, Richard W., 1981. "Farm Sector Application Of -Flow-Of-Funds Accounting," Staff Reports 276729, United States Department of Agriculture, Economic Research Service.
    12. Manuel Jr. Pastor, 1988. "Ascenso y caída de la heterodoxia peruana: un modelo simple de del nuevo estructuralismo," Apuntes. Revista de ciencias sociales, Fondo Editorial, Universidad del Pacífico, vol. 15(23), pages 41-71.
    13. Nela Vlahinic & Pavle Jakovac, 2014. "Revisiting the Energy Consumption-Growth Nexus for Croatia: New Evidence from a Multivariate Framework Analysis," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 8(4), December.
    14. M.A.G. van Meerhaeghe, 1967. "Les instruments de la politique des prix," Revue Économique, Programme National Persée, vol. 18(4), pages 618-636.
    15. Khairul Kabir Sumon & Md. Sazib Miyan, 2017. "Inflation and Economic Growth: An Empirical Evidence of Bangladesh (1986-2016)," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 454-464.
    16. Christophe Kamps, 2005. "The Dynamic Effects of Public Capital: VAR Evidence for 22 OECD Countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 533-558, August.
    17. Maria Carme Riera i Prunera, 2003. "Deficit, human capital and economic growth dynamics," Working Papers in Economics 102, Universitat de Barcelona. Espai de Recerca en Economia.
    18. Saaed, A.A.J., 2007. "Inflation and Economic Growth in Kuwait: 1985-2005. Evidence from Co-Integration and Error Correction Model," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(1).
    19. Roberto Veneziani & Luca Zamparelli & Michalis Nikiforos & Gennaro Zezza, 2017. "Stock-Flow Consistent Macroeconomic Models: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1204-1239, December.
    20. Akin Serife Nuray, 2012. "Immigration, Fiscal Policy, and Welfare in an Aging Population," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-45, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eeb:articl:v:1:y:2015:i:3:p:48-70. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Valerijs (email available below). General contact details of provider: http://eebej.eu .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.