Drivers of Exchange Rate Dynamics in Selected CIS Countries: Evidence from a Factor-Augmented Vector Autoregressive (FAVAR) Analysis

Christian Dreger and Jarko Fidrmuc

EconStor Open Access Articles and Book Chapters, 2011, vol. 47, issue 4, 49-58

Abstract: We investigate the likely sources of exchange rate dynamics in selected member countries of the Commonwealth of Independent States (CIS; Russia, Kazakhstan, Ukraine, Kyrgyzstan, Azerbaijan, and Moldova) over the past decade (1999-2010). Evidence is based on country VARs augmented by a regional common-factor structure (FAVAR model). The models include nominal exchange rates, the common factor of exchange rates in the CIS countries, and international drivers such as global trade, share prices, and oil price. Global, regional, and idiosyncratic shocks are identified in a standard Cholesky fashion. Their relevance for exchange rates is explored by a decomposition of the variance of forecast errors. The impact of global shocks on the development of exchange rates has increased, particularly if financial shocks are considered. Because of the recent global financial crisis, regional shocks have become more important at the expense of global shocks.

Keywords: Exchange rates; CIS countries; financial crisis; FAVAR models (search for similar items in EconPapers)
JEL-codes: C22 F31 G15 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (11)

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Journal Article: Drivers of Exchange Rate Dynamics in Selected CIS Countries: Evidence from a Factor-Augmented Vector Autoregressive (FAVAR) Analysis (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:144566

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