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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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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:
Handle: RePEc:diw:diwwpp:dp867

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

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Cited by:
  1. Fidrmuc, Jarko & Süß, Philipp Johann, 2009. "The Outbreak of the Russian Banking Crisis," Discussion Papers in Economics, University of Munich, Department of Economics 10996, University of Munich, Department of Economics.
  2. Frank Hespeler, 2011. "A VECM evaluation of monetary transmission in Uzbekistan," EcoMod2011 3460, EcoMod.

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