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Drivers of Exchange Rate Dynamics in Selected CIS Countries: Evidence from a FAVAR Analysis

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  • Christian Dreger
  • Jarko Fidrmuc

Abstract

We investigate the likely sources of exchange rate dynamics in selected CIS countries (Russia, Kazakhstan, Ukraine, Kyrgyzstan, Azerbaijan, and Moldova) over the past decade (1999-2008). The analysis is based on country VAR models augmented by a regional common factor structure (FAVAR model). The models include nominal exchange rates, the common factor of exchange rates in the CIS countries, and global drivers such as gold, oil and share prices. Global, regional and idiosyncratic shocks are identified in a standard Cholesky fashion. Based on the decomposition of the variance of forecast errors, their relevance for exchange rates is explored. As a quite robust finding, CIS exchange rates have become more vulnerable to global shocks towards the end of the sample.

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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 867.

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Length: 14 p.
Date of creation: 2009
Date of revision:
Publication status: Published in: Emerging Markets Finance & Trade 47 (2011) No.4, 49-58
Handle: RePEc:diw:diwwpp:dp867

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Keywords: Exchange rates; CIS countries; financial crisis; FAVAR models;

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  1. Jarko Fidrmuc & Jan Fidrmuc, 2001. "Disintegration and Trade," LICOS Discussion Papers 9901, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  2. Mayes, David G & Korhonen, Vesa, 2007. "The CIS – does the regional hegemon facilitate monetary integration?," BOFIT Discussion Papers 16/2007, Bank of Finland, Institute for Economies in Transition.
  3. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Boston College Working Papers in Economics 440, Boston College Department of Economics.
  4. Fungacova, Zuzana & Solanko, Laura, 2008. "Risk-taking by Russian banks: Do location, ownership and size matter?," BOFIT Discussion Papers 21/2008, Bank of Finland, Institute for Economies in Transition.
  5. Dibooglu, Selahattin & Kutan, Ali M., 2001. "Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 257-275, June.
  6. Katerina Kalcheva & Nienke Oomes, 2007. "Diagnosing Dutch Disease: Does Russia Have the Symptoms?," IMF Working Papers 07/102, International Monetary Fund.
  7. Vladimir Chaplygin & Andrew Hughes Hallett & Christian Richter, 2006. "Monetary integration in the ex-Soviet Union: A 'union of four'? ," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(1), pages 47-68, 03.
  8. Gunther Schnabl, 2005. "International Capital Markets and Exchange Rate Stabilization in the CIS," International Finance 0505015, EconWPA.
  9. Polterovich, Victor & Popov, Vladimir & Tonis, Alexander, 2008. "Mechanisms of Resource Curse, Economic Policy and Growth," MPRA Paper 20570, University Library of Munich, Germany.
  10. Korhonen, Iikka & Wachtel, Paul, 2005. "A note on exchange rate pass-through in CIS countries," BOFIT Discussion Papers 2/2005, Bank of Finland, Institute for Economies in Transition.
  11. Kutan, Ali M. & Wyzan, Michael L., 2005. "Explaining the real exchange rate in Kazakhstan, 1996-2003: Is Kazakhstan vulnerable to the Dutch disease?," Economic Systems, Elsevier, vol. 29(2), pages 242-255, June.
  12. Korhonen, Iikka & Mehrotra, Aaron, 2009. "Real Exchange Rate, Output and Oil: Case of Four Large Energy Producers," BOFIT Discussion Papers 6/2009, Bank of Finland, Institute for Economies in Transition.
  13. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
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Cited by:
  1. Fidrmuc, Jarko & Süß, Philipp Johann, 2009. "The Outbreak of the Russian Banking Crisis," Discussion Papers in Economics 10996, University of Munich, Department of Economics.

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