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Monetary Policy Shocks in the Russian Economy and Their Macroeconomic Effects
[Шоки Процентной Политики Банка России И Оценка Их Макроэкономических Эффектов]

Author

Listed:
  • Pestova, Anna A. (Пестова, Анна)

    (Russian Presidential Academy of National Economy and Public Administration)

  • Mamonov, Mikhail E. (Мамонов, Михаил)

    (Russian Presidential Academy of National Economy and Public Administration)

  • Rostova, Natalia A. (Ростова, Наталья)

    (Russian Presidential Academy of National Economy and Public Administration)

Abstract

This section conducts an estimate of the impulse response function of key macroeconomic variables to monetary policy shocks in Russia. The estimates are carried out through a dynamic factor model (DFM) of the Russian economy with structural identification of shocks by imposing various sets of sign restrictions on the behavior of endogenous variables. We restricted first the monetary aggregate M2 only (a decrease in response to an increase of the Key rate), and then—simultaneously—M2, real effective exchange rate (an increase), and GDP (a decrease). We estimated the DFM using a large dataset of 58 macroeconomic and financial variables. The estimation results suggest that there is no decreasing response of consumer prices to an exogenous tightening of the interest rate policy of the Central Bank of Russia. This empirical evidence is supported implicitly by DFMbased predictions that under the imposition of such a decreasing response as an identifying restriction to the model, a positive interest rate shock is not transmitted through the interest rate channel of monetary policy to expected increases of the interest rates on commercial loans and private deposits. However, existing empirical evidence refutes this model-based result. Therefore, this study supports the view according to which a tightening of monetary policy in Russia is inefficient in terms of restraining inflation. In addition, monetary policy shocks negatively affect investments, retail sales, export and import, real wages, and employment. Different economic activities react differently to monetary policy shocks: exportoriented activities are not sensitive to these shocks, whereas domestic pro-cyclical activities (e.g. construction) can be substantially depressed in response to unexpected increases of interest rates. Finally, the expectations of economic agents are also significantly affected by shocks in the interest rate policy of the Bank of Russia.

Suggested Citation

  • Pestova, Anna A. (Пестова, Анна) & Mamonov, Mikhail E. (Мамонов, Михаил) & Rostova, Natalia A. (Ростова, Наталья), 2019. "Monetary Policy Shocks in the Russian Economy and Their Macroeconomic Effects [Шоки Процентной Политики Банка России И Оценка Их Макроэкономических Эффектов]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 4, pages 48-75, August.
    • Handle: RePEc:rnp:ecopol:ep1926
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    References listed on IDEAS

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    1. A. A. Pestova., 2018. "On the effects of monetary policy in Russia: The role of the space of spanned shocks and the policy regime shifts," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 2.
    2. Seung C. Ahn & Alex R. Horenstein, 2013. "Eigenvalue Ratio Test for the Number of Factors," Econometrica, Econometric Society, vol. 81(3), pages 1203-1227, May.
    3. Drobyshevsky, Sergey M. (Дробышевский, Сергей) & Kiyutsevskaya, Anna M. (Киюцевская, Анна) & Trunin, Pavel V. (Трунин, Павел), 2018. "Scope of Interest Rate Policy of Central Banks [Возможности Процентной Политики Центральных Банков]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 4, pages 42-61, August.
    4. Matteo Luciani, 2015. "Monetary Policy and the Housing Market: A Structural Factor Analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(2), pages 199-218, March.
    5. Yury Achkasov, 2016. "Nowcasting of the Russian GDP Using the Current Statistics: Approach Modification," Bank of Russia Working Paper Series wps8, Bank of Russia.
    6. Mallick, Sushanta K. & Sousa, Ricardo M., 2012. "Real Effects Of Monetary Policy In Large Emerging Economies," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S2), pages 190-212, September.
    7. Borzykh, Olga, 2016. "Bank lending channel in Russia: A TVP-FAVAR approach," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 43, pages 96-117.
    8. Mamonov, M., 2018. "Lending Channel of Monetary Policy in Russia: Microeconomic Estimates for Retail and Corporative Segments of Credit Market," Journal of the New Economic Association, New Economic Association, vol. 37(1), pages 112-144.
    9. Valery Charnavoki & Juan J. Dolado, 2014. "The Effects of Global Shocks on Small Commodity-Exporting Economies: Lessons from Canada," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(2), pages 207-237, April.
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    Cited by:

    1. Kurovskiy, Gleb, 2020. "Disentanglement of natural interest rate shocks and monetary policy shocks nexus," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 59, pages 128-143.

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    More about this item

    Keywords

    monetary policy; dynamic factor model (DFM); principal component analysis; structural identification; monetary policy shocks;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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