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Estimation of the Equilibrium Real Exchange Rate in Russia: Trade-Balance Approach

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  • Nadezhda Ivanova

    (CEFIR)

Abstract

The paper estimates the equilibrium real exchange rate (ERER) in Russia for 1995-20065 using the partial-equilibrium version of the trade-balance approach. The three-good framework is applied, allowing distinction between the RER for imports and RER for exports. The terms of trade are viewed as exogenous. Russia’s export demand is regarded as infinitely price elastic, implying the estimation of export supply function. Russian imports are assumed to be demand determined. The estimation of the trade-volume equations is based on the search of cointegrating relationships. The import elasticities are in line with estimates obtained in other studies. The estimations for the export supply equation confirm “supply elasticity pessimism”. The ERER simulations reveal the degree of rouble overvaluation of 25%-40%, depending on the measure of the RER used, before the August 1998 crisis. In recent years, given the surge in oil prices and pro-active exchange rate policy of the Bank of Russia, the rouble appears to be substantially undervalued. In 2004-2006, given the surge in oil prices and pro-active exchange rate policy of the Bank of Russia, the rouble appears to be substantially undervalued: by 40-70% on average, depending on the measure of the RER used.

Suggested Citation

  • Nadezhda Ivanova, 2007. "Estimation of the Equilibrium Real Exchange Rate in Russia: Trade-Balance Approach," Working Papers w0102, New Economic School (NES).
  • Handle: RePEc:abo:neswpt:w0102
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    File URL: https://www.nes.ru/files/Preprints-resh/WP102.pdf
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    References listed on IDEAS

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    Cited by:

    1. Skrobotov, Anton (Скроботов, Антон) & Fokin, Nikita (Фокин, Никита), 2018. "Testing the Asymmetric Convergence of the Real Exchange Rate to Equilibrium During the Managed Ruble Exchange Rate Regime [Тестирование Ассиметричной Сходимости Реального Обменного Курса К Равновес," Working Papers 021808, Russian Presidential Academy of National Economy and Public Administration.
    2. Polbin, Andrey & Fokin, Nikita, 2020. "Modeling the dynamics of import in the Russian Federation using the error correction model," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 59, pages 88-112.
    3. Astrid Ayala & Szabolcs Blazsek & Adrian Licht, 2022. "Score-driven stochastic seasonality of the Russian rouble: an application case study for the period of 1999 to 2020," Empirical Economics, Springer, vol. 62(5), pages 2179-2203, May.
    4. Prilepskiy, Ilya (Прилепский, Илья), 2017. "Factors of Exports Dynamics and Import Substitution after the Sharp Exchange Rate Depreciation [Факторы Динамики Экспорта И Импортозамещения После Резкого Ослабления Курса Национальной Валюты]," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 3, pages 100-133, June.
    5. Skrobotov, Anton A. (Скроботов, Антон) & Fokin, Nikita D. (Фокин, Никита), 2018. "Testing Asymmetric Convergence of the Real Exchange Rate to Equilibrium During Ruble Exchange Rate Targeting [Тестирование Асимметричной Сходимости Реального Обменного Курса К Равновесному Во Время," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 3, pages 132-147, June.
    6. Muhammad Ahad & Zaheer Anwer, 2021. "Asymmetric impact of oil price on trade balance in BRICS countries: Multiplier dynamic analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2177-2197, April.

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    More about this item

    Keywords

    Equilibrium Real Exchange Rate; Trade Elasticities; Russia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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