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Effect of Monetary Policy on Investment in Russian Regions

Author

Listed:
  • Andrei Shevelev

    (Bank of Russia)

  • Maria Kvaktun

    (Bank of Russia)

  • Kristina Virovets

    (Bank of Russia)

Abstract

This paper assesses the effect of monetary policy on investment in Russian regions. In the first stage of the research, we estimate the responses of regional investment to interbank market rate shocks using structural vector autoregressions. In the second stage, we estimate regression models using impulse responses as dependent variables and explanatory factors as independent variables. The regression calculations are performed using the Elastic Net regularisation technique. We find that regions with higher shares of manufacturing, agriculture, and construction are more responsive to monetary policy shocks. In addition, we identified the high importance of these sectors in explaining the different effects of monetary policy on investment. The results also show that the larger is the share of the mining and quarrying sector in the gross regional product (GRP) and the greater the imports to GRP ratio, the smaller is the absolute change in investment from a monetary policy shock.

Suggested Citation

  • Andrei Shevelev & Maria Kvaktun & Kristina Virovets, 2021. "Effect of Monetary Policy on Investment in Russian Regions," Russian Journal of Money and Finance, Bank of Russia, vol. 80(4), pages 31-49, December.
    • Handle: RePEc:bkr:journl:v:80:y:2021:i:4:p:31-49
    DOI: 10.31477/rjmf.202104.31
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    monetary policy; investment; interbank market rate; transmission mechanism; structural vector autoregression; impulse response functions; Elastic Net; panel vector autoregression;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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