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The Ruble between the Hammer and the Anvil: Oil Prices and Economic Sanctions

Author

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  • Christian Dreger
  • Jarko Fidrmuc
  • Konstantin Kholodilin
  • Dirk Ulbricht

Abstract

The exchange rate fluctuations strongly affect the Russian economy, given its heavy dependence on foreign trade and investment. Since January 2014, the Ruble lost 50% of its value against the US Dollar. The fall of the currency started with the conflict between Russia and Ukraine. The impact of the conflict on Russia may have been amplified by sanctions imposed by Western countries. However, as Russia is heavily dependent on exports of natural resources, the oil price decline starting in Summer 2014 could be another factor behind the deterioration. By using high frequency data on nominal exchange and interest rates, oil prices, actual and unanticipated sanctions, we provide evidence on the driving forces of the Ruble exchange rate. The analysis is based on cointegrated VAR models, where fundamental long-run relationships are implicitly embedded. The results indicate that the bulk of the depreciation can be related to the decline of oil prices. In addition, unanticipated sanctions matter for the conditional volatility of the variables involved.

Suggested Citation

  • Christian Dreger & Jarko Fidrmuc & Konstantin Kholodilin & Dirk Ulbricht, 2015. "The Ruble between the Hammer and the Anvil: Oil Prices and Economic Sanctions," Discussion Papers of DIW Berlin 1488, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1488
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jonas Frank, 2017. "The empirical consequences of trade sanctions for directly and indirectly affected countries," FIW Working Paper series 174, FIW.
    2. Matthieu Crozet & Julian Hinz, 2016. "Collateral Damage: The impact of the Russia sanctions on sanctioning countries’ exports," Working Papers 2016-16, CEPII research center.
    3. Hinz, Julian, 2017. "The cost of sanctions: Estimating lost trade with gravity," Kiel Working Papers 2093, Kiel Institute for the World Economy (IfW).
    4. Crozet, Matthieu & Hinz, Julian, 2016. "Friendly fire - the trade impact of the Russia sanctions and counter-sanctions," Kiel Working Papers 2059, Kiel Institute for the World Economy (IfW).

    More about this item

    Keywords

    Military conflict; sanctions; oil prices; Ruble depreciation;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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