BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
The role of oil prices and the real exchange rate in Russia's economy
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 appreciation (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 parameters and diagnostic statistics do not indicate that
Russia's dependence on oil and the real exchange rate would somehow have
weakened in recent years.
Keywords: Russian economy; fiscal policy; oil; real exchange rate; VAR; cointegration; (follow links to similar papers)
25 pages, March 11, 2002
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