Effects of Terms of Trade Shocks on the Russian Economy

The principal interest of the paper is the quantification of terms of trade shocks response of the Russian economy on a detailed computable general equilibrium (CGE) model calibrated with Russian input-output data. The results suggest a decrease in the welfare of the representative consumer and real GDP with the deterioration of the terms of trade. In the Central scenario (a 10% decrease in the world price of crude oil, a 3% decrease in the world price of natural gas, and a 8% decrease in the world price of petroleum products) welfare of the representative consumer decreases by -1.17% of the benchmark consumption level, or -0.58% of the base year GDP in the comparative static model. The percentage change of the GDP in the Central scenario of the comparative static model is of the same magnitude as the decrease in representative consumer's welfare in terms of the benchmark GDP (-1.55%). Welfare changes associated with the Central scenario of the steady-state model, where capital stock adjusts to its long-term level, indicate a significant decrease in the welfare of the representative consumer up to -2.64% of the benchmark consumption level, or -1.23% of the base year GDP. Percentage change of the GDP in the Central scenario of the steady-state model exceeds representative consumer's decrease in welfare in terms of the benchmark GDP (-2.51%). The model was validated by historical simulation with observed levels of exogenous parameters, mimicking change in economic environment from 2011 to 2015. The results of the historical simulation stress the importance of fiscal parameters (i.e. export taxes) in analysis of production behaviour of Russian extraction industries.