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Towards a Flexible Exchange Rate Policy in Russia

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  • Roland Beck
  • Geoff Barnard

Abstract

In the years preceding the onset of the global financial crisis, the Central Bank of Russia (CBR) had two goals: to reduce inflation and limit the real appreciation of the rouble. Given the strength of Russia’s balance of payments during the ten years through the first half of 2008, the de facto tight management of the nominal exchange rate resulted in large interventions which were only partially sterilised. As a result, inflation remained persistently high. During the global financial crisis in 2008-09 Russia’s monetary policy was initially constrained by a large degree of private debt dollarisation. After a gradual adjustment of the exchange rate to the new oil price environment which was costly due to reserve losses, the CBR started to lower interest rates and to allow for a somewhat higher degree of exchange rate flexibility. Looking ahead, even greater exchange rate flexibility should be permitted since (i) commodity exporting countries can successfully run inflation targeting and (ii) we find that exchange rate pass-through has been limited and asymmetric and can be taken into account under inflation targeting. Preparations for inflation targeting should focus on a commitment to price stability as the primary goal of monetary policy. At the same time the authorities should enhance their understanding of how monetary developments affect inflation and financial stability and accelerate financial sector reforms aimed at financial deepening. Vers une politique de taux de change plus flexible en Russie Pendant les années précédant le déclenchement de la crise financière mondiale, la banque centrale de Russie avait deux objectifs : réduire l’inflation et limiter l’appréciation réelle du rouble. Étant donné le solde très positif de la balance des paiements pendant la décennie se terminant à la première moitié de 2008, la gestion du taux de change nominal a eu pour résultat des interventions importantes qui n’ont été que partiellement stérilisées. L’inflation est donc restée élevée. Pendant la crise financière mondiale en 2008-09 la politique monétaire de la Russie a été contrainte par le niveau élevé de dollarisation de la dette privée. Après un ajustement graduel du taux de change à la situation nouvelle des prix du pétrole qui a été coûteux à cause des pertes de réserves, la banque centrale a commencé à baisser les taux d’intérêt et à permettre plus de flexibilité du taux de change. Dans le futur, la Russie devrait permettre davantage de flexibilité du taux de change puisque (i) les pays exportateurs de matières premières peuvent gérer un régime de ciblage de l’inflation ; et (ii) nous trouvons que la transmission des mouvements du taux de change à l’inflation n’a été que modérée et asymétrique et qu’on peut en tenir compte sous un tel régime. Les préparations pour le ciblage de l’inflation devraient être focalisées sur un engagement à la stabilité des prix comme objectif principal de la politique monétaire. En même temps, les autorités devraient améliorer leur compréhension de la façon dont les développements monétaires affectent l’inflation et la stabilité financière ainsi qu’accélérer les réformes financières visant un approfondissement du secteur financier.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 744.

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Date of creation: 18 Dec 2009
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Handle: RePEc:oec:ecoaaa:744-en

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Keywords: economy; interest rate; exchange rate policy; monetary policy; inflation; Russia; inflation targeting; politique de taux de change; ciblage de l’inflation; Russie; inflation; taux d'intérêt; économie; taux de change; politique monétaire;

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References

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  1. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
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  8. Frankel, Jeffrey A., 2005. "Peg the export price index: A proposed monetary regime for small countries," Journal of Policy Modeling, Elsevier, vol. 27(4), pages 495-508, June.
  9. Laurence Ball & N. Gregory Mankiw, 1993. "Relative-price changes as aggregate supply shocks," Working Papers 93-13, Federal Reserve Bank of Philadelphia.
  10. Sebastian Edwards, 2006. "The Relationship Between Exchange Rates and Inflation Targeting Revisited," Working Papers Central Bank of Chile 409, Central Bank of Chile.
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  12. Geoff Barnard, 2009. "Russia's Long and Winding Road to a more Efficient and Resilient Banking Sector," OECD Economics Department Working Papers 731, OECD Publishing.
  13. Roberto Álvarez & Patricio Jaramillo & Jorge Selaive, 2008. "Exchange Rate Pass-Through into Import Prices: The Case of Chile," Working Papers Central Bank of Chile 465, Central Bank of Chile.
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