The Exchange Rate and the Verbal Interventions by the Government and the Bank of Russia

This paper measures the effects of the Russian Government and the Bank of Russia’s verbal interventions on the USD/RUB exchange rate. To take into account the verbal interventions by the Bank of Russia, we analyze the announcements made by the members of its Board of Directors and by the press-service. Concerning the communication policy of the Government, we search for the announcements by the President of the Russian Federation, the representatives of the President Administration and the members of the Government of the Russian Federation. The analysis of the verbal interventions from 2014 to 2016 reveals the main characteristics of the information policy of the Russian authorities. For example, the most announcements by the representatives of the Bank of Russia contain positive information about financial stability, while the most announcements by the Government representatives refer to the GDP dynamics. The information policy about the inflation dynamics is consistent among different policy authorities. The representatives of both the Bank of Russia and the Government have published the same number of announcements with similar content. In order to reveal the relationship between verbal interventions and the ruble exchange rate, we use daily data and estimate an ARMA(0,0)-GARCH(1,1) model. According to the results, the returns of the USD/RUB exchange rate were higher when the Bank of Russia communicated lower inflation risks and higher RUB devaluation in 2014–2016. The USD/RUB returns were also higher when the representatives of the Russian Government announced the higher exchange rate volatility and the higher deficit. The days when the Russian Government communicated higher inflation risks or stricter fiscal policy were characterized by lower USD/RUB returns.