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Central bank policy under significant balance-of-payment shocks and structural shifts

Author

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  • Sinyakov, Andrey
  • Yudaeva, Ksenia

Abstract

In this paper, we analyze a number of monetary and FX policy alternatives using the model of a small open oil-exporting economy hit by severe balance-of-payment shocks, such as those that simultaneously affected the Russian economy in 2014–2015. For our purposes, we modify Romer's (2013) IS-MP general equilibrium model by adding a structure similar to the Russian economy (tradables and oil vs. non-tradables). In the model, we consider an optimal policy mix that includes a floating exchange rate, FX liquidity provision by a central bank and temporary tightening of monetary policy. The flexible exchange rate works as a shock absorber, helping restore aggregate demand and domestic production. If inflation expectations are not anchored, contractionary monetary policy helps to stabilize them. Financial stability risks are addressed by lending FX liquidity to the banking sector.

Suggested Citation

  • Sinyakov, Andrey & Yudaeva, Ksenia, 2016. "Central bank policy under significant balance-of-payment shocks and structural shifts," Russian Journal of Economics, Elsevier, vol. 2(3), pages 246-278.
    • Handle: RePEc:eee:rujoec:v:2:y:2016:i:3:p:246-278
    DOI: 10.1016/j.ruje.2016.09.001
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    References listed on IDEAS

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    1. Davis, Steven J. & Haltiwanger, John, 2001. "Sectoral job creation and destruction responses to oil price changes," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 465-512, December.
    2. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, vol. 91(2), pages 248-252, May.
    3. Harberger, Arnold C, 1998. "A Vision of the Growth Process," American Economic Review, American Economic Association, vol. 88(1), pages 1-32, March.
    4. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Closed versus Open Economies: An Integrated Approach," NBER Working Papers 8604, National Bureau of Economic Research, Inc.
    5. Michael Alexeev & Shlomo Weber, 2013. "Russian economy, the," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    6. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2005. "Large Devaluations and the Real Exchange Rate," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 742-784, August.
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    Cited by:

    1. Alexandra Glazova & Maxim Nevalennyi & Andrey Sinyakov, 2025. "An Educational Model of a Small Open Economy for Monetary Policy Analysis (with examples from Bank of Russia’s practice)," Bank of Russia Working Paper Series wps154, Bank of Russia.

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    Keywords

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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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