Beyond traditional defenses: Unraveling the dynamics of reserves and exchange rate volatility in the face of economic sanctions

Ahmed Alwadeai (), Nataliia Vlasova (), Hadi Mareeh () and Nadeem Aljonaid ()
Additional contact information
Ahmed Alwadeai: Central University of Finance and Economics, Beijing, China
Nataliia Vlasova: University of International Business and Economics, Beijing, China
Hadi Mareeh: Shandong University, Jinan, China
Nadeem Aljonaid: Qilu Institute of Technology, Jinan, China

Russian Journal of Economics, 2024, vol. 10, issue 1, 1-19

Abstract: This study investigates the impact of economic sanctions on exchange rate volatility, with a specific focus on the role of foreign reserves in mitigating these effects across 21 countries from 2002 to 2022. Employing advanced econometric models, including Panel-Corrected Standard Errors (PCSE) and Feasible Generalized Least Squares (FGLS), our analysis identifies a positive correlation between economic sanctions and increased exchange rate volatility. A significant finding is that high reserves-to-GDP ratios do not fully stabilize exchange rate volatility in the presence of economic sanctions, challenging the traditional view of reserves as reliable stabilizers. It also demonstrates an inverse relationship between heightened reserves-to-GDP ratios and economic growth during periods of sanctions, indicating that larger reserves may reflect economic difficulties rather than strength. These findings implicitly call for a reevaluation of economic policies in favor of adopting strategies that mitigate global economic uncertainties. Supported by previous literature, the importance of international cooperation and governance that foster economic and trade diversification is highlighted. This approach can provide alternative sources of foreign exchange and reduce economic vulnerability to sanctions, enhancing overall economic resilience and stability.

Keywords: economic; sanctions; exchange; rate; volatility; total; reserves; geopolitical; risks (search for similar items in EconPapers)
JEL-codes: F31 F34 F51 P45 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://rujec.org/article/118769/

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arh:jrujec:v:10:y:2024:i:1:p:1-19

DOI: 10.32609/j.ruje.10.118769

Access Statistics for this article

Russian Journal of Economics is currently edited by Alexey Kudrin

More articles in Russian Journal of Economics from ARPHA Platform
Bibliographic data for series maintained by Teodor Georgiev ().