Semi-structural economic model of Far Eastern macroregion

A high degree of heterogeneity in key macroeconomic indicators is characteristic of Russia’s regions. This may cause an asymmetric reaction of regional economies to various shocks, including common monetary policy shocks. The purpose of this study is to develop a tool for analysing the economy of the Far Eastern macroregion (FEMR): a semi-structural model that takes into account the particularities of the Russian Far East. These include the region’s smaller contribution to main national macroeconomic indicators compared to the other macroregion’s, greater integration into Asia-Pacific markets in contrast to the country as a whole, and a high share of external demand-oriented industries in output. The model is used to estimate the contribution of internal and external shocks to the dynamics of the main macroeconomic variables of the FEMR such as output and inflation. By comparing the contribution of shocks to output and inflation in 2016–2022, we show that oil price shocks and fiscal policy shocks contributed more to the development of the output gap in the Far Eastern macroregion than in Russia as a whole in this period. This is due to the heavy dependence of the Far East economy on oil exports and the influx of funds from the federal budget to implement large investment projects. However, external sector shocks made a smaller contribution to the dynamics of the macroregion’s output gap in comparison with the entire country. Compared to Russia as a whole, inflation in the Far Eastern macroregion has greater inertia and dependence on service price shocks but less contribution of food price shocks. The reason is the low self-sufficiency of the macroregion in food, as a result, a significant share of products is delivered from other regions. This determines a high share of logistics costs in the price of final consumer goods, which in some periods partially offset the high volatility of food prices.