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Sectoral Real Effective Exchange Rate and Industry Competitiveness in Russia

Author

Listed:
  • Irina Bogacheva

    (Bank of Russia, Russian Federation)

  • Alexey Porshakov

    (Bank of Russia, Russian Federation)

  • Natalia Turdyeva

    (Bank of Russia, Russian Federation)

Abstract

One of the most popular measures for the economy’s cost competitiveness in foreign trade is the real exchange rate. The common approach to its calculation consists in adjusting the nominal exchange rates for the trade-weighted CPI-based inflation differentials between the domestic economy and its major trade partners. Although such approach is most often used for official statistics, the CPI-based real exchange rate does not accurately capture an economy’s competitiveness in foreign trade. The latter is explained by the fact that the CPI naturally considers price changes for both tradable and non-tradable goods. We aim at constructing a set of alternative indicators of REER that would more extensively account for the structure of the Russian economy and its foreign trade and, hence, provide more reliable estimates of changes in Russian economy's cost competitiveness over time. This is done by taking into an account the structure of the Russian economy combined with the specificities of production processes in industries that are extensively involved in foreign trade, as well as integration of Russian industries into global value chains. Against this background, we also show the importance of distinguishing between the output-based and cost-based real exchange rate concepts when addressing the country’s trade competitiveness issue.

Suggested Citation

  • Irina Bogacheva & Alexey Porshakov & Natalia Turdyeva, 2020. "Sectoral Real Effective Exchange Rate and Industry Competitiveness in Russia," Bank of Russia Working Paper Series wps59, Bank of Russia.
    • Handle: RePEc:bkr:wpaper:wps59
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    References listed on IDEAS

    as
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    JEL classification:

    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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