BOFIT Discussion Paper 25/2015: The Ruble between the hammer and the anvil: Oil prices and economic sanctions
The exchange rate fluctuations strongly affect the Russian economy, given its heavy depend-ence 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 pric-es, actual and unanticipated sanctions, we provide evidence on the driving forces of the Ru-ble 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 de-preciation can be related to the decline of oil prices. In addition, unanticipated sanctions mat-ter for the conditional volatility of the variables involved
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Tagit: Ruplan kurssi, Öljy