Russia from Bust to Boom: Oil, Politics or the Ruble?

Bruno Merlevede, Koen Schoors and Bas van Aarle

William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: This paper develops and estimates a small macroeconomic model of the Russian economy. The model is tailored to analyze the impact of the oil price, the exchange rate, and political stability on economic performance. The model does very well in explaining Russia’s economic history in the period 1995-2002. We then use the model to simulate two sets of scenarios, one with various oil price scenarios and one with various adverse shocks. The simulations suggest that the Russian economy is still very vulnerable to oil price swings, and that these swings have asymmetric effects. Indeed the cost of a downward swing of oil prices seems to be larger than the benefit of an upward swing. We also find that the aggregate effects of an oil price collapse are comparable to these of renewed political instability. Although their propagation mechanism is quite different, both adverse shocks do have a similar effect on real GDP. A real exchange rate appreciation on the other hand has relatively mild effects on real GDP. All in all, it is suggested that Russia should reduce its vulnerability to adverse oil price shocks and maintain political stability.

Keywords: Russia; Macroeconomic Modeling; Macroeconomic stabilization (search for similar items in EconPapers)
JEL-codes: C70 E16 E17 E58 E63 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2004-10-01
New Economics Papers: this item is included in nep-cmp, nep-ene, nep-mac and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Russia from Bust to Boom: Oil, Politics or the Ruble? (2007)
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