Between the hammer and the anvil: The impact of economic sanctions and oil prices on Russia’s ruble

Christian Dreger, Konstantin Kholodilin (), Dirk Ulbricht and Jarko Fidrmuc

Journal of Comparative Economics, 2016, vol. 44, issue 2, 295-308

Abstract: Exchange rate fluctuations strongly affect the Russian economy, given its heavy dependence on foreign trade and investment. In the aftermath of the conflict between Russia and Ukraine that broke out early 2014, the Russian ruble lost 50% of its value against the US dollar. The impact of the conflict on Russia may have been amplified by sanctions imposed by Western countries. However, as Russia is heavily dependent on natural resource exports, another factor behind the deterioration could be the sharp decline in oil prices starting in summer 2014. Using high-frequency data on nominal exchange and interest rates, oil prices, actual and unanticipated sanctions, we provide evidence on forces underlying 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: Political conflict; Sanctions; Oil prices; Russian ruble depreciation (search for similar items in EconPapers)
JEL-codes: C22 F31 F51 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (91)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:44:y:2016:i:2:p:295-308

DOI: 10.1016/j.jce.2015.12.010

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