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Relationship between Exchange Rate and Inflation in Russia
Abstract
The article estimates the short- and medium-run exchange rate pass-through effect on consumer prices on the aggregate level and for individual groups of goods and services for the period from 2000 to 2008. Special attention is paid to the asymmetric exchange rate pass-through. It is shown that the improvement of certain macroeconomic indicators in recent years in Russia has not led to a reduction in pass-through effect on inflation as in other countries. The pass-through effect has a pronounced asymmetrical character, that is, consumer prices are more likely to respond to the depreciation of the domestic currency, than to its appreciation. The largest effect is observed for the food CPI while its costs constitute a significant part of household budget in Russia.
... There are several papers focusing on exchange rate pass-through in specific CIS countries, mainly Russia. The studies for Russia, for example, provide quite a wide variety of estimates for ERPT (Dobrynskaya and Levando, 2005;Beck and Barnard 2009;Kataranova, 2010;Ponomarev et al., 2014). The estimates of ERPT to CPI for USD range between 5-40 % after one quarter, and between 20-90 % after four quarters. ...
... For emerging economies, the evidence is mixed, but it seems that depreciation may lead to stronger ERPT than appreciation and that large devaluations are associated with stronger than proportionate ERPT (Mihaljek and Klau, 2008;Razafimahefa, 2012;IMF, 2015). Among CIS countries, asymmetric effects have been found at least for Russia (Kataranova, 2010;Ponomarev et al., 2014). ...
This empirical study considers the pass-through of key nominal exchange rates and commodity prices to
consumer prices in the Commonwealth of Independent States (CIS), taking into account the effect of
idiosyncratic and common factors influencing prices. In order to do that, given the relatively short window of
available quarterly observations (1999–2014), we choose heterogeneous panel frameworks and control for
cross-sectional dependence. The exchange rate pass-through is found to be relatively high and rapid for CIS
countries in the case of the nominal effective exchange rate, but not significant for the bilateral rate with the
US dollar. We also show that global factors in combination with financial gaps and commodity prices are
important. In the case of large rate swings, the exchange rate pass-through of the bilateral rate with the US
dollar becomes significant and similar to that of the nominal effective exchange rate.
... Companies that ship at global prices have their shipments increased by a weaker national currency, which is not deniable. Questionable is the ratio of exchange rate fluctuations and currency inflation [10]. ...
The paper assesses how production factors affect the sustainable development of Yakutia, a Russian region. The function of sustainable development assumed here is the total shipments of the region’s administrative districts. The function of territorial arrangement of production has the following factors as variables: agglomeration, labor, capital, and infrastructure security. Analysis uses statistics on those factors over 2006-2017, operational data from sectoral ministries, and the 2002/2010 National Census data. The research applies integral assessment of the factors reduced to dimensionless values of 0 to 10 for comparability. Shipments are adjusted for inflation, with 2006 prices being used as the baseline. For price comparison, the value products shipped from industrial districts at global prices is adjusted for exchange rate fluctuations. The next step is to compute the coefficients of correlation between these factors and the total shipments with a breakdown by type: agriculture vs industry. A sufficient retrospective, an array of comparable data, and multiple correlation analysis have produced an output that is close to the actual situation in the region’s economy.
... Причем наличие такой тенденции наблюдается во всех странах СНГ не зависимо от уровня экономического развития. К примеру, в России, несмотря на наличие сравнительно высокого уровня развития экономики, до сих пор сохраняется такая зависимость: специалисты считают, что главной особенностью инфляционных процессов в России является наличие существенной зависимости уровня цен от динамики курса рубля [4]. Следует отметить, что именно «заметная доля товарного импорта в потребительской корзине обусловливает значимость влияния на инфляцию изменений обменного курса рубля. ...
The main objective of this study is to identify the characteristics of methods for regulating inflation processes in an open economy. In this regard, the article discusses in detail such issues as, features of inflationary processes in an open economy, the specifics of the impact of external factors on the level of inflation. On the example of the economy of the Republic of Tajikistan, the peculiarities of the influence of the dynamics of the exchange rate and foreign trade factor on the inflation rate are considered, the main factors influencing the dynamics of the national currency exchange rate are identified, the problem of regulating inflation tendencies in conditions of high import dependence is studied.The theoretical basis for this study was the work of foreign and domestic scientists on the problems of inflation in an open economy, the impact of the exchange rate on inflationary processes, and the anti-inflationary monetary policy under conditions of high import dependence. Statistical data of the National Bank of the Republic of Tajikistan website - www.nbt.tj and the Statistical Agency under the President of the Republic of Tajikistan - www.stat.tj for 2000-2019 were used as an information database.Results. The main factors of inflation in an open economy are identified. The mechanism of direct and indirect influence of foreign economic factors, in particular the exchange rate on inflationary processes, is investigated. The main factors of inflation and the mechanism of their influence on the example of the Republic of Tajikistan are investigated. The significant influence of external factors (imports, cash flow, exchange rate, dynamics of the Russian ruble) on inflationary processes and economic development of the Republic of Tajikistan has been revealed. The study shows that import is a factor that holds back inflationary trends in the country, external cash flows form domestic demand, influence the dynamics of the Somoni rate, and thereby affect the inflation rate. The significance of the Somoni exchange rate in regulating inflation processes has been determined. Significant influence of external factors on the formation of the Somoni exchange rate also was revealed. Based on the correlation and regression analysis, a close relationship is established between the dynamics of the Tajik Somoni and the Russian ruble. The article studies the peculiarity of the use of monetary policy in order to stimulate domestic production and export.The results of the study show that in the conditions of the Republic of Tajikistan, foreign economic factors, in particular the exchange rate, largely determine inflationary trends. On this basis, an objective need arises to maintain the stability of the national currency in order to curb inflation and ensure the stability of economic development. The study showed that the dynamics of the exchange rate of Somoni largely determined by external than internal factors. For this reason, the presence of a significant effect of the exchange rate on inflationary trends in the long term may lead to undesirable consequences that are associated with the problem of regulating the exchange rate.
The main purpose of the study is to examine the factors influencing famers’ choice of modern farm inputs such
as inorganic fertilizer among irrigation farmers in Auyo Local Government Area of Jigawa State, Nigeria. Data
for the study was sourced using structured questionnaire, a two-stage sampling technique was used to select the
respondents. Logit regression model was estimated to analyses the factors that influence modern fertilizer
adoption, the result of the estimated model shows that, marital status, farm size, farming experience, contact
with extension workers and membership of association; were statistically significant in determining fertilizer
adoption in Auyo local government area, Jigawa State. The result further shows that the major obstacles to
fertilizer adoption and use intensity include: high cost of fertilizer, lack of credit facilities, inadequate supply,
untimely supply, hoarding of fertilizer by agents, hoarding of fertilizer by agents and supply of undesired type.
The study recommends that, government should enhance the services of extension workers, offer micro finance
services, provide credit facilities, skills and training programmes on some off – farm jobs for farmers in the
study area.
The fall in the oil prices from mid-2014 is causing a decrease in domestic demand and a strong devaluation of the ruble, which in turn promotes the growth of the price competitiveness of Russian producers, stimulates the supply side of the economy (especially in foreign markets, where there is no recession), and thus creates the possibility of offsetting the fall in domestic demand due to the growth of net exports. However, as the analysis of the economic literature, the world experience and current Russian economic trends demonstrates, the joint impact of oil prices and ruble devaluation on the growth rates of the Russian economy, with all its structural problems, can lead to a much more severe recession than the majority of experts, if to judge by average consensus estimates, expect in their forecasts (as of the end of September 2015).
We examine the relationship between probability of large fluctuations of inflation rate and monetary developments. With this purpose we identify the periods of high inflation regime for the cross-section of 15 transition economies. The obtained results are used to estimate the panel probit models that capture the relationship between probability of transition to a high inflation regime and money growth. We calculate the conditional probability of transition to a high inflation regime that may be regarded as a money-based inflation risk indicator for Russia.
The paper studies the impact of the transition to the inflation targeting regime on the magnitude of the pass-through effect of the exchange rate to prices. We analyze cross-country panel data on developed and developing countries. It is shown that the transition to this regime of monetary policy contributes to a significant reduction in both the short- and long-term pass-through effects. This decline is stronger in developing countries. We identify the main channels that ensure the influence of the monetary policy regime on the pass-through effect, and examine their performance. In addition, we analyze the data of time series for Russia. It was concluded that even there the transition to inflation targeting led to a decrease in the dependence of the level of inflation on fluctuations in the ruble exchange rate.
The article examines the relationship between the dynamics of the exchange rate and prices in Russia in a volatile environment of foreign markets and the change of the monetary and credit policy of the Bank of Russia.The purpose of this work is to assess the transfer effect of the nominal exchange rate of the ruble on the prices for consumers and producers in 2002–2017 in general and in the periods of relative homogeneity of the monetary policy regime in Russia. The analysis was based on statistical data on the Russian economy for the period 2002–2017. The method of econometric modelling is used to quantify the observed effects. The study is based on the apparatus of structural vector autoregressions, evaluated using Bayesian methods. The structural identifcation of the model is carried out by the recursive ranking of variables and decomposition of structural shocks elaborated by André-Louis Cholesky. Bayesian regularization is based on the application of a combination of independent normal and inverse Wishart’s a priori distributions. Qualitative interpretation of the results is based on the analysis of the impulse response functions. The results of the study confrm the existence of a statistically and economically signifcant relationship between the dynamics of the exchange rate and prices in Russia during the last two decades. The effect of exchange rate shocks is immediate. We showed that the impact of the exchange rate on consumer prices has remained signifcant for several years. The reaction of producer prices is greater than the effect observed for consumer prices. A sample of data for 2014–2017 indicates adecrease in the effect transfer of exchange rate and proved the effectiveness of inflation targeting. The transition to the policy of inflation targeting has reduced the dependence of inflation processes in Russia on the external market conditions and global risks.
There exists a high global concern in different nations on environmental sustainability especially at the focal stage of increased economic growth and development process due to high level of environmental degradation and pollution. The major aim of this study was to empirically examine how to minimise carbon emissions (CO2) in Malaysia which are mainly caused by energy production, fossil fuel consumption, population density and economic growth. The study adopted the method of autoregressive distributed lag bound testing approach to analyse the data for the period 1971–2011. The study found that economic growth in Malaysia has a direct relationship with CO2 emissions in both the short run and the long run. Similarly, there is a positive relationship between fossil fuel consumption and CO2 emissions over the same period. Population density was found to have positive impacts on CO2 emissions. Contrarily, the relationship between the activities of energy production and pollution is negative in the long run. The study recommends that a targeted GDP growth rate should be set with the consideration to avoid more environmental pollution. In addition, the positive impact of fossil fuel consumption on the environmental pollution implies that there is a need to make and implement policies that will encourage the use of public transportation system more than private transportations. That is, the unnecessary use of private vehicles should be discouraged in order to reduce the extent of fossil fuel consumption.
In an environment where countries have trade relations with each other, prices of domestic goods should vary due to trade. Developing countries in particular import raw materials and semi-manufactured goods from other countries in order to carry out the production process. Final goods are imported for household consumption as well. Exchange rate changes naturally affect domestic prices as well. The effect of exchange rate pass-through on inflation for Turkey was investigated with the NARDL method using the data between January 2003 and November 2015. According to the results of the analysis, an increase in the exchange rate increases the consumer price index. While a decrease in the exchange rate does not have the same reaction, any decrease in the exchange rate would cause prices to increase in the short-run. In addition, domestic product has an asymmetrical and negative relationship with price index in short and long-term according to our analysis. We found that in the short-run both the exchange rate and domestic product are asymmetrically related with the price index where only domestic product asymmetrically affects the consumer price index.
Falling oil prices are leading to a reduction in domestic demand and lowering of the ruble exchange rate, thus enhancing the price competitiveness of Russian producers and stimulating the supply side of the economy (especially in foreign markets unaffected by the recession). Indeed, all of this create the possibility of offsetting the decline in domestic demand to a varying degree through increased net exports. However, the present study shows that, taking into account all of the structural problems of the Russian economy, the devaluation of the ruble may lead to a more severe recession than anticipated by most experts in their estimates, judging by average consensus forecasts (as of the end of September 2015).
This study analyzes the impact of volatility in government borrowing from central bank (GBCB) on domestic inflation in Pakistan. This paper utilizes Generalized Auto Regressive Conditional Hetroskedasticity (GARCH) model to estimate volatility in GBCB using monthly data from July 1992 to June 2007. The empirical results, based on auto regressive distributed lag (ARDL) with bound testing technique suggest that domestic inflation in Pakistan is related with volatility in government borrowing from central bank in the long run. Furthermore, error correction model (ECM) estimates show that in the short run, inflation is also affected by volatility in GBCB.
We assess the extent and speed of exchange rate pass-through in the countries of Commonwealth of Independent States (CIS). We do this in the framework of vector autoregressive regressions, utilising impulse functions and variance decompositions with monthly data that starts in 1999 in order to avoid the periods of very high inflation and the Russian crisis. We find that exchange rate movements have a clear impact on price developments in the CIS countries. Speed of pass-through is also fairly high, in most cases the full effect is transmitted into domestic prices in less than 12 months. Unlike in many other emerging market countries, an additional effect from US prices on to domestic prices is not significant. The extent of exchange rate pass-through is usually much higher than in our benchmark group of emerging market countries. Variance decomposition shows that the relative share of exchange rates in explaining changes in domestic prices is higher in the CIS countries than in the benchmark group. Our results indicate that policy-makers in the CIS countries need to pay more attention to exchange rate movements than in many other emerging market countries.
Central Banks that are primarily concerned with the behavior of prices will use monetary policy to insulate prices from exchange rate changes. Prices then appear unresponsive to the exchange rate. The observed relationships between prices and the exchange rate will reflect Central Bank actions instead of the underlying relationship between exchange rates and prices. This paper explicitly recognizes the role that policy plays in determing the observable relationships between exchange rates and prices, and in so doing, it illustrates how the underlying relationships can be unraveled. Using different empirical approaches, we examine the recent experience of the United States. We find that the prices of various nondurable goods, and even of some services, respond modestly to the exchange rate, and we find that the responses emerge most clearly when the role of monetary policy is explicitly considered. These findings are consistent with the hypothesis that the Federal Reserve acts in a way to mitigate the impact of exchange rate fluctuations on domestic prices.
The impact of real exchange rate on the Russian economy in internal and external markets is studied. The analysis takes into account that imported goods are only partial substitutes for those produced domestically, as the former is comprised mainly by manufactures with diverse properties. Positive or negligible effect of real appreciation of the ruble on the share of Russian goods in internal markets is found for major industries. This means that real appreciation of the ruble shifts domestic demand from imported to domestically produced goods, i.e. increases their competitiveness. Higher share of imports in constant prices is combined then with positive effect of the ruble appreciation on the volume of domestic supplies. No evidence of adverse effect of real appreciation on export supplies has been found, supposedly due to high profitability of most exports. Additional channel of negative influence of higher real exchange rate on inflation is revealed: through adjustment of producer prices to cheaper imported analogues.
This paper examines the behaviour of the Bank of Russia in post-crisis period (1999–2003). Special attention is devoted to econometric modelling of monetary policy rules of various types. Our empirical results support our preliminary assumptions: despite the officially declared priority of anti-inflation policy, the major efforts of the Bank of Russia were aimed at affecting the exchange rate's smoothness and the level. For that the Bank of Russia relied mainly on monetary targeting, which is the consequence of underdevelopment and low efficiency of the Russian financial sector and banking system.
This paper documents a robust and sustained decline in exchange rate pass-through to U.S. import prices, from well above 0.5 during the 1970s and 1980s to around 0.2 over the last decade. We attribute this decline to the rising prominence of competition from China, a shift in import pricing behavior since the Asian financial crisis, and the reduced share of material-intensive goods in U.S. imports. We also find evidence that foreign exporters are increasingly setting their prices with an eye on U.S. prices. These results, in turn, suggest a new and more general hypothesis linking the decline in pass-through to the evolving nature of competition in global markets and structural changes in international production patterns.
Recently there has been a significant decline in the degree to which firms ‘pass through’ changes in costs to prices, a decline that is frequently characterized as a reduction in the ‘pricing power’ of firms. The decline appears to be associated with the decline in inflation in many countries. The decline has important implications for monetary policy because it affects both forecasts of inflation and the effects of changes in monetary policy on inflation. Some have argued that the decline in pricing power helped to keep inflation low in the face of apparently strong demand pressures in the United States in the late 1990s. This paper puts forth the view that the decline in pass-through or pricing power is due to the low inflation environment that has recently been achieved in many countries. First, a microeconomic model of price setting is used to show that lower pass-through is caused by lower perceived persistence of cost changes. Evidence is then presented showing that inflation is positively correlated with persistence of inflation, suggesting that the low inflation itself has caused the low pass-through. An economy-wide model consistent with the micromodel is then presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways, but can disappear quickly if monetary policy and expectations change.
The paper reviews the recent conduct of monetary policy and the central bank's rule-based behavior in Russia. Using different policy rules, we test whether the Bank of Russia reacts to changes in inflation, the output gap and the exchange rate in a consistent and predictable manner. Our results indicate that, during the period from 1993 to 2004, the Bank of Russia used monetary aggregates as the main policy instrument. Some estimations provide evidence that the Bank of Russia was more concerned with reducing inflation before 1995, while the priorities shifted towards exchange rate stabilization after 1995. Journal of Comparative Economics33 (3) (2005) 484–499.
This paper examines the exchange rate pass-through in the transition to low and stable inflation environments. The purpose is to test if low and stable inflation environments lead to low levels of exchange rate pass-through and thus contribute to weakening the "fear of floating" phenomenon experienced by some small open economies. The results presented are in line with this hypothesis. For a group of small open economies, which have recently experienced an inflation reduction process, it is shown that the level of exchange rate pass-through weakens as the level of inflation falls. Therefore, it is argued that once nominal variables are stable, the "fear of inflation", which any central bank should have, no longer implies a "fear of floating".
This paper examines the behaviour of exchange rate pass-through to domestic prices in India during the post-economic reforms initiated since the major devaluation of July 1991. It observes that there is no clear-cut evidence of a fall in exchange rate pass-through to domestic prices. Further, there is asymmetry in pass-through between appreciation and depreciation, and between sizes of the exchange rate change. Based on the empirical evidence provided in the literature, the paper conjectures that reductions in import tariffs, the removal of trade restrictions, the increased import penetration ratio and openness of the economy and the change in the composition of imports following the economic liberalisation could have transitorily negated the impact of lower inflation on pass-through. Part of the non-decline in long-run pass-through is due to a rise in inflation persistence. This could follow from the dismantling of price controls in an environment of periodic spurts in inflation around a non-declining inflationary trend, combined with a rise in the government deficit, which has a nexus with inflation in India.
The paper investigates the ability of monetary authorities to keep the real exchange rate undervalued over the long run by implementing a policy of accumulating foreign exchange reserves. We consider a model of a three-sector, small, open economy, where the central bank continuously purchases foreign currency reserves and compare the results to Russian and Chinese economies in recent years. Both countries appear to pursue reserve accumulation policies. We find a clear tradeoff between the steady state levels of the real exchange rate and inflation. After calibration, the model predicts an 8.5% real undervaluation of the Russian currency and a 13.7% undervaluation of the Chinese currency. Predicted inflation is found to match observed levels.
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