Monetary Policy Shocks in the Russian Economy and Their Macroeconomic Effects

Шоки процентной политики Банка России и оценка их макроэкономических эффектов

Pestova, Anna A. (Пестова, Анна) (), Mamonov, Mikhail E. (Мамонов, Михаил) () and Rostova, Natalia A. (Ростова, Наталья) ()
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Pestova, Anna A. (Пестова, Анна): Russian Presidential Academy of National Economy and Public Administration
Mamonov, Mikhail E. (Мамонов, Михаил): Russian Presidential Academy of National Economy and Public Administration
Rostova, Natalia A. (Ростова, Наталья): Russian Presidential Academy of National Economy and Public Administration

Ekonomicheskaya Politika / Economic Policy, 2019, vol. 4, 48-75

Abstract: This section conducts an estimate of the impulse response function of key macroeconomic variables to monetary policy shocks in Russia. The estimates are carried out through a dynamic factor model (DFM) of the Russian economy with structural identification of shocks by imposing various sets of sign restrictions on the behavior of endogenous variables. We restricted first the monetary aggregate M2 only (a decrease in response to an increase of the Key rate), and then—simultaneously—M2, real effective exchange rate (an increase), and GDP (a decrease). We estimated the DFM using a large dataset of 58 macroeconomic and financial variables. The estimation results suggest that there is no decreasing response of consumer prices to an exogenous tightening of the interest rate policy of the Central Bank of Russia. This empirical evidence is supported implicitly by DFMbased predictions that under the imposition of such a decreasing response as an identifying restriction to the model, a positive interest rate shock is not transmitted through the interest rate channel of monetary policy to expected increases of the interest rates on commercial loans and private deposits. However, existing empirical evidence refutes this model-based result. Therefore, this study supports the view according to which a tightening of monetary policy in Russia is inefficient in terms of restraining inflation. In addition, monetary policy shocks negatively affect investments, retail sales, export and import, real wages, and employment. Different economic activities react differently to monetary policy shocks: exportoriented activities are not sensitive to these shocks, whereas domestic pro-cyclical activities (e.g. construction) can be substantially depressed in response to unexpected increases of interest rates. Finally, the expectations of economic agents are also significantly affected by shocks in the interest rate policy of the Bank of Russia.

Keywords: monetary policy; dynamic factor model (DFM); principal component analysis; structural identification; monetary policy shocks (search for similar items in EconPapers)
JEL-codes: E31 E43 E51 E58 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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