The Nexus between Oil price and Russiaâ€™s Real Exchange rate: Better Paths via Unconditional vs Conditional Analysis
The present study deals with the nexus between oil price and Russiaâ€™s real exchange rate along different econometric methods (ARDL bounds testing approach, wavelet coherency and frequency domain through Breitung and Candelonâ€™s (2006) technique). The obtained findings are highly suggestive of a sharp causal connection running from oil price to real exchange rate in lower frequencies. The reverse link is not supported. This implies that Russia should effectively tackle with short-run disturbances triggered by oil price and continue to decrease its great dependence on the energy sector via drastic and proactive measures. The economic and fiscal initiatives of Putin administration may help to better cope with sudden shocks, to reach weaker oil dependency and to create the confidence needed for economic recovery. While our research does not say much about the routes through which oil price may affect differently the real exchange rate, it clearly indicates the presence of short-term nexus conditioning upon potential control variables including GDP, governmental revenues, terms of trade and productivity differential. The unconditional analysis appears as a meaningless exercise to find a clearer relationship between the focal variables.
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|Date of revision:||Sep 2014|
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