BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
The Ruble between the hammer and the anvil: Oil prices and economic sanctions
(), Jarko Fidrmuc
(), Konstantin Kholodilin
() and Dirk Ulbricht
Abstract: The exchange rate fluctuations strongly affect the Russian
economy, given its heavy dependence on foreign trade and investment. Since
January 2014, the Ruble lost 50% of its value against the US Dollar. The
fall of the currency started with the conflict between Russia and Ukraine.
The impact of the conflict on Russia may have been amplified by sanctions
imposed by Western countries. However, as Russia is heavily dependent on
exports of natural re-sources, the oil price decline starting in Summer
2014 could be another factor behind the deterioration. By using high
frequency data on nominal exchange and interest rates, oil prices, actual
and unanticipated sanctions, we provide evidence on the driving forces of
the Ruble exchange rate. The analysis is based on cointegrated VAR models,
where fundamental long-run relationships are implicitly embedded. The
results indicate that the bulk of the depreciation can be related to the
decline of oil prices. In addition, unanticipated sanctions matter for the
conditional volatility of the variables involved.
Keywords: military conflict; sanctions; oil prices; Ruble depreciation; (follow links to similar papers)
JEL-Codes: C22; F31; F51; (follow links to similar papers)
29 pages, August 21, 2015
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