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Exchange Rate, Inflation and Industrial Policy

Author

Listed:
  • Polterovich, V.

    (Central Economics and Mathematics Institute, RAS, Moscow, Russia
    Moscow School of Economics, Lomonosov Moscow State University, Moscow, Russia)

  • Popov, V.

    (Central Economics and Mathematics Institute, RAS, Moscow, Russia)

Abstract

The dynamics of the exchange rate of the Russian ruble is considered in the context of the discussions on the optimal exchange rate regimes. It is shown that the dominant focus on the stability of the nominal exchange rate was erroneous. Since the prices in Russia grew faster than in the countries - its trading partners, this policy led to an overvaluation of the real exchange rate and caused the shock devaluations in 1998, 2008 and 2014-2015. It is argued that the best regime for Russia is the "dirty float" aimed at maintaining relatively low and stable real exchange rate. This implies the periodic devaluation of the nominal rate. This implies the periodic devaluation of the nominal exchange rate. The suggested policy entails accumulation of foreign exchange reserves that stimulates export oriented growth. These reserves can also become a source of investment in case of appropriate industrial policy.

Suggested Citation

  • Polterovich, V. & Popov, V., 2016. "Exchange Rate, Inflation and Industrial Policy," Journal of the New Economic Association, New Economic Association, vol. 29(1), pages 192-198.
    • Handle: RePEc:nea:journl:y:2016:i:29:p:192-198
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    References listed on IDEAS

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    1. Joseph E. Stiglitz & Justin Yifu Lin (ed.), 2013. "The Industrial Policy Revolution I," International Economic Association Series, Palgrave Macmillan, number 978-1-137-33517-3, December.
    2. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 379-408.
    3. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.
    4. Baglan, Deniz & Yoldas, Emre, 2014. "Non-linearity in the inflation–growth relationship in developing economies: Evidence from a semiparametric panel model," Economics Letters, Elsevier, vol. 125(1), pages 93-96.
    5. Atish R Ghosh & Jonathan D Ostry & Mahvash S Qureshi, 2015. "Exchange Rate Management and Crisis Susceptibility: A Reassessment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(1), pages 238-276, May.
    6. Ibarra, Raul & Trupkin, Danilo R., 2016. "Reexamining the relationship between inflation and growth: Do institutions matter in developing countries?," Economic Modelling, Elsevier, vol. 52(PB), pages 332-351.
    7. Joseph E. Stiglitz & Justin Lin Yifu & Ebrahim Patel (ed.), 2013. "The Industrial Policy Revolution II," International Economic Association Series, Palgrave Macmillan, number 978-1-137-33523-4, December.
    8. Polterovich, V., 2015. "On the Formation of National Planning System in Russia," Journal of the New Economic Association, New Economic Association, vol. 26(2), pages 237-242.
    9. Vladimir Sokolov & Byung‐Joo Lee & Nelson C. Mark, 2011. "Linkages Between Exchange Rate Policy And Macroeconomic Performance," Pacific Economic Review, Wiley Blackwell, vol. 16(4), pages 395-420, October.
    10. Bruce Greenwald & Joseph E. Stiglitz, 2013. "Learning and Industrial Policy: Implications for Africa," International Economic Association Series, in: Joseph E. Stiglitz & Justin Lin Yifu & Ebrahim Patel (ed.), The Industrial Policy Revolution II, chapter 1, pages 25-49, Palgrave Macmillan.
    11. Polterovich, Victor & Popov, Vladimir, 2003. "Accumulation of Foreign Exchange Reserves and Long Term Growth," MPRA Paper 20069, University Library of Munich, Germany.
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    Cited by:

    1. Polbin, Andrey, 2017. "Моделирование Реального Курса Рубля В Условиях Изменения Режима Денежно-Кредитной Политики [Modeling the real ruble exchange rate under monetary policy regime change]," MPRA Paper 78139, University Library of Munich, Germany.
    2. Polterovich, Victor, 2016. "Институты Догоняющего Развития [Institutions of Catching-up Development]," MPRA Paper 73447, University Library of Munich, Germany.
    3. Pavel Aleksandrovich Minakir, 2018. "Russian Crisis: Expectations Against Facts," Spatial Economics=Prostranstvennaya Ekonomika, Economic Research Institute, Far Eastern Branch, Russian Academy of Sciences (Khabarovsk, Russia), issue 1, pages 7-15.
    4. Grebenkina, A. & Khandruev, A., 2021. "Difference in intensity of exchange rate factors in countries with targeting inflation regime," Journal of the New Economic Association, New Economic Association, vol. 51(3), pages 125-143.

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    More about this item

    Keywords

    exchange rate; fear of floating; industrial policy; economic growth;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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