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Russia from Bust to Boom: Oil, Politics or the Ruble?

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  • Bruno Merlevede
  • Koen Schoors

    ()

  • Bas van Aarle

Abstract

This paper develops and estimates a small macroeconomic model of the Russian economy. The model is tailored to analyze the impact of the oil price, the exchange rate, and political stability on economic performance. The model does very well in explaining Russia’s economic history in the period 1995-2002. We then use the model to simulate two sets of scenarios, one with various oil price scenarios and one with various adverse shocks. The simulations suggest that the Russian economy is still very vulnerable to oil price swings, and that these swings have asymmetric effects. Indeed the cost of a downward swing of oil prices seems to be larger than the benefit of an upward swing. We also find that the aggregate effects of an oil price collapse are comparable to these of renewed political instability. Although their propagation mechanism is quite different, both adverse shocks do have a similar effect on real GDP. A real exchange rate appreciation on the other hand has relatively mild effects on real GDP. All in all, it is suggested that Russia should reduce its vulnerability to adverse oil price shocks and maintain political stability.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-722.

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Length: 29 pages
Date of creation: 01 Oct 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-722

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Keywords: Russia; Macroeconomic Modeling; Macroeconomic stabilization;

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References

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  1. Hall, S. & Mizon, G.E. & Welfe, A., 1999. "Modelling economies in transition: an introduction," Discussion Paper Series In Economics And Econometrics 9919, Economics Division, School of Social Sciences, University of Southampton.
  2. Jouko Rautava, 2002. "The role of oil prices and the real exchange rate in Russia‘s economy," Macroeconomics, EconWPA 0209004, EconWPA.
  3. Esanov, Akram & Merkl, Christian & Vinhas de Souza, Lúcio, 2004. "Monetary Policy Rules for Russia," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 11/2004, Bank of Finland, Institute for Economies in Transition.
  4. John B. Taylor, 2001. "The Role of the Exchange Rate in Monetary-Policy Rules," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 263-267, May.
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Cited by:
  1. Oomes , Nienke & Kalcheva, Katerina, 2007. "Diagnosing Dutch disease: Does Russia have the symptoms?," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 7/2007, Bank of Finland, Institute for Economies in Transition.
  2. Katerina Kalcheva & Nienke Oomes, 2007. "Diagnosing Dutch Disease," IMF Working Papers 07/102, International Monetary Fund.
  3. Haaparanta, Pertti & Pirttilä, Jukka, 2005. "Reforms and Confidence," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 1/2005, Bank of Finland, Institute for Economies in Transition.

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