Title: The importance of external and internal shocks for real exchange rate and industrial production in Russia: SVAR approach
Authors: Andrey Zubarev - Russian Presidential Academy of National Economy and Public Administration (Russia) [presenting]
Andrey Polbin - Russian Presidential Academy of National Economy and Public Administration (Russia)
Anton Skrobotov - Russian Presidential Academy of National Economy and Public Administration and SPBU (Russia)
Abstract: The main sources of macroeconomic fluctuations are studies in Russia, which is an oil-exporting economy. An SVARX approach with long run restrictions was used to identify oil price shocks (identified by the oil price as an exogenous variable), nominal shocks and two types of productivity shocks. Particularly, one is a general productivity shock (in the whole economy), while the other is a Balassa-Samuelson-type productivity shock in the tradable sector of economy. With the help of impulse response functions we found that the productivity shock in the tradable sector leads to a permanent increase in real exchange rate, while a general productivity shock has only short-run negative effect on real exchange rate. This result is in line with New-Keynesian models with nominal rigidities. Contrary to previous studies, we found that the Balassa-Samuelson effect was not the main driver of industrial production and real exchange dynamics in Russia. Oil price dynamics was an important source of industrial production and real exchange rate fluctuations which supports the widespread opinion that the Russian economy is poorly diversified. We also found a huge contribution of nominal shock to the decomposition of real exchange rate dynamics in the second half of 2014 which could be attributed to insufficient tightening of monetary policy.