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The Ruble between the hammer and the anvil: Oil prices and economic sanctions

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

No 25/2015, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: The exchange rate fluctuations strongly affect the Russian economy, given its heavy dependence on foreign trade and investment. Since January 2014, the Ruble lost 50% of its value against the US Dollar. The fall of the currency started with the conflict between Russia and Ukraine. The impact of the conflict on Russia may have been amplified by sanctions imposed by Western countries. However, as Russia is heavily dependent on exports of natural re-sources, the oil price decline starting in Summer 2014 could be another factor behind the deterioration. By using high frequency data on nominal exchange and interest rates, oil prices, actual and unanticipated sanctions, we provide evidence on the driving forces of 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.

JEL-codes: C22 F31 F51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cis and nep-ene
Date: 2015-08-21
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Published in Published in Journal of Comparative Economics, Vol. 44, Issue 2, May 2016, Pages 295–308 as Between the hammer and the anvil: The impact of economic sanctions and oil prices on Russia’s ruble

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