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A Markov Switching VECM Model for Russian Real GDP, Real Exchange Rate and Oil Prices

Author

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  • Andrey Feliksovich Bedin

    (Joint Scientific and Educational Laboratory of Applied Mathematics, The Russian Presidential Academy of National Economy and Public Administration and The Moscow Institute of Physics and Technology, Russia,)

  • Alexander Vladimirovich Kulikov

    (Joint Scientific and Educational Laboratory of Applied Mathematics, The Russian Presidential Academy of National Economy and Public Administration and The Moscow Institute of Physics and Technology, Associated Professor at the Department of High Mathematics, The Moscow Institute of Physics and Technology, Russia,)

  • Andrey Vladimirovich Polbin

    (Head of the Laboratory of Mathematical Modeling of Economic Processes, The Russian Presidential Academy of National Economy and Public Administration; Deputy Head of the Laboratory of Mathematical Modeling of Economic Processes, The Gaidar Institute for Economic Policy, Russia)

Abstract

This paper considers an application of the Markov switching vector error correction model to the analysis of the long-run and the short-run dependence of Russian real GDP and real exchange on oil prices. An algorithm for estimation of the model with a priori information on a state of hidden Markov chain in some periods of time is provided. It is shown that for the period of 1999 2018 two different regimes are well defined: with a slow adjustment of real exchange rate and a sharp reaction of GDP in response to oil price shock and with a fast adjustment of real exchange rate and a slow adjustment of GDP in response to shock. We have concluded that floating ruble exchange rate is a natural stabilizer of the Russian economic activity.

Suggested Citation

  • Andrey Feliksovich Bedin & Alexander Vladimirovich Kulikov & Andrey Vladimirovich Polbin, 2021. "A Markov Switching VECM Model for Russian Real GDP, Real Exchange Rate and Oil Prices," International Journal of Energy Economics and Policy, Econjournals, vol. 11(2), pages 402-412.
    • Handle: RePEc:eco:journ2:2021-02-48
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    More about this item

    Keywords

    Russian economy; GDP; real exchange rate; oil prices; error correction model; Markov switching model.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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