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The role of oil prices and the real exchange rate in Russia‘s economy

Author

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  • Jouko Rautava

    (Bank of Finland)

Abstract

Most people seem to think that Russia’s economy and fiscal situation are still crucially tied up with international oil prices and the exchange rate of the rouble, although this view has recently been challenged by some analysts. Empirical research on this topic is, however, scanty. In this paper, the impact of international oil prices and the real exchange rate on Russia's economy and fiscal policy is analysed using VAR methodology and cointegration techniques. The research period covered is 1995:Q1 – 2001:Q3. The results indicate that in the long run a 10% permanent increase (decrease) in international oil prices is associated with a 2.2% growth (fall) in the level of Russian GDP. Respectively, a 10% real apprecia-tion (depreciation) of the rouble is associated with a 2.4% decline (increase) in the level of output. These long-run equilibrium relationships also have a significant impact on short-run dynamics through an error-correction mechanism. The estimation results confirm also a strong dependence of fiscal revenues on output and oil price fluctuations. Estimated pa-rameters and diagnostic statistics do not indicate that Russia’s dependence on oil and the real exchange rate would somehow have weakened in recent years.

Suggested Citation

  • Jouko Rautava, 2002. "The role of oil prices and the real exchange rate in Russia‘s economy," Macroeconomics 0209004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0209004
    Note: Type of Document - pdf; prepared on PC; pages: 25; figures: included
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    References listed on IDEAS

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    1. Basdevant, Olivier, 2000. "An econometric model of the Russian Federation," Economic Modelling, Elsevier, vol. 17(2), pages 305-336, April.
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    Cited by:

    1. Tuuli Koivu & Pekka Sutela, 2005. "Financial Systems in Transition: Could Small Actually Be Beautiful?," Eastern Economic Journal, Eastern Economic Association, vol. 31(2), pages 265-283, Spring.
    2. Muhammad Shahbaz & Aviral Kumar Tiwari & Mohammad Iqbal Tahir, 2015. "Analyzing time-frequency relationship between oil price and exchange rate in Pakistan through wavelets," Journal of Applied Statistics, Taylor & Francis Journals, vol. 42(4), pages 690-704, April.
    3. Bruno Merlevede & Koen Schoors & Bas van Aarle, 2004. "Russia from Bust to Boom: Oil, Politics or the Ruble?," William Davidson Institute Working Papers Series 2004-722, William Davidson Institute at the University of Michigan.
    4. Katsuya Ito, 2008. "Oil price and macroeconomy in Russia," Economics Bulletin, AccessEcon, vol. 17(17), pages 1-9.
    5. Bernd Hayo & Ali Kutan, 2002. "The Impact of News, Oil Prices, and International Spillovers on Russian Financial Markets," Finance 0209001, University Library of Munich, Germany.
    6. Hasanov, Fakhri, 2009. "Analyzing price level in a booming economy: the case of Azerbaijan," MPRA Paper 29555, University Library of Munich, Germany.
    7. Bernd Hayo & Ali M. Kutan, 2005. "The impact of news, oil prices, and global market developments on Russian financial markets," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(2), pages 373-393, April.
    8. Jacek Cukrowski, 2004. "Russian oil: the role of the sector in Russia's economy," Post-Communist Economies, Taylor & Francis Journals, vol. 16(3), pages 285-296.
    9. Sadek Boussena & Catherine Locatelli, 2004. "Vers une plus grande cohérence de la politique pétrolière de la Russie ?," Post-Print halshs-00003489, HAL.
    10. Kaitila, Ville, 2003. "An Assessment of RussiaŽs Growth Prospects in 2003 - 2010," Discussion Papers 869, The Research Institute of the Finnish Economy.
    11. Oxana Malakhovskaya & Alexey Minabutdinov, 2014. "Are commodity price shocks important? A Bayesian estimation of a DSGE model for Russia," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 4(1/2), pages 148-180.
    12. Semko Roman, 2013. "Optimal economic policy and oil prices shocks in Russia," EERC Working Paper Series 13/03e, EERC Research Network, Russia and CIS.
    13. Fakhri Hasanov, 2010. "The Impact of Real Oil Price on Real Effective Exchange Rate: The Case of Azerbaijan," Discussion Papers of DIW Berlin 1041, DIW Berlin, German Institute for Economic Research.
    14. Catherine Locatelli, 2002. "La faisabilité de la libéralisation de l'industrie gazière russe," Post-Print halshs-00177826, HAL.
    15. Markku Tykkyläinen, 2003. "Geographical Dimensions of Russian Energy Developments," ERSA conference papers ersa03p464, European Regional Science Association.
    16. Melnikov, Roman, 2010. "The impact of oil price dynamics on the macroeconomic indicators of the Russian economy," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 17(1), pages 20-29.
    17. Katsuya Ito, 2009. "The Russian Economy and the Oil Price: A Co-integrated VAR Approach," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 16(1), pages 220-227, May.
    18. Catherine Locatelli, 2006. "The russian oil industry between public and private governance : obstacles to international oil companies' investment strategies," Post-Print halshs-00002159, HAL.

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    More about this item

    Keywords

    Russian economy; fiscal policy; oil; real exchange rate; VAR; cointegration;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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