A Minimalist Model for the Ruble during the Russian Invasion of Ukraine

Guido Lorenzoni () and Iván Werning

American Economic Review: Insights, 2023, vol. 5, issue 3, 347-56

Abstract: This note isolates an overlooked economic force for the ruble to appreciate in response to international sanctions limiting exports to Russia. The intuition is that when Russians are unable to buy the mix of foreign goods they wish, foreign goods become less attractive, increasing demand for domestic goods. To reestablish an equilibrium, a real appreciation is needed to raise the relative price of domestic goods and incentivize imports from nonsanctioning countries. We also review well-known forces for depreciation. Our analysis emphasizes that the exchange rate is an inadequate signal of the welfare impact and of the effectiveness of sanctions.

JEL-codes: D74 E31 F14 F31 F51 P24 P33 (search for similar items in EconPapers)
Date: 2023
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Working Paper: A Minimalist Model for the Ruble During the Russian Invasion of Ukraine (2022)
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DOI: 10.1257/aeri.20220303

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