Real appreciation and output: Russia 1993—1997
The paper shows that, in 1993-1997, larger month-to-month real appreciation in Russia was associated with larger month-to-month increase in the aggregate supply, supposedly because of a decrease in the prices of imported production inputs. At the same time, according to our estimations, short-term adjustments of the aggregate demand were not sensitive to month-to-month real appreciation. Thus, the cumulative effect of month-to-month real appreciation on the short-run changes in real GDP turned out to be positive. Our results imply that the sharp contraction of output soon after the crisis of August 17, 1998 was caused by the sharp real depreciation of the Russian rouble in August and September of the same year. Another hypothesis suggested by the paper is that the recovery of output after several months of contraction was due to the increase in real (deflated by the producer price index) money holdings We attribute this increase in real money demand to the collapse of GKO/OFZ market. However, an explanation of the post-crisis dynamics of real GDP would require a more thorough analysis.
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