Rouble Exchange Rate Dynamics: Econometric Analysis

The present paper examines the impact of macroeconomic variables on the real effective exchange rate of the Russian rouble using vector error correction model (VECM) with cointegration techniques. The main aim of this research is to investigate the influence of oil prices on the rouble real effective exchange rate during the period between January 1999 and January 2017 while controlling other potential determinants such as GDP growth, foreign reserves dynamics and interest rate and to analyze to which extent this influence has changed during the crises 2008 and 2014. The study contributes to the literature by taking a longer time span, and, therefore, analyzing the recent economic crisis of the year 2014, as well as the crisis of the year 2008. The monthly data is collected and natural logarithms are taken. The results imply that oil prices are indeed an important and significant factor of the real effective exchange rate dynamics. The nature of the relationship between oil prices and the real exchange rate has not changed in the period from 2008M05 to 2014M10; however, in contrast to most predictions, the oil prices effect has strengthened during the period after the crisis 2014. Short-term influence of interest rates and foreign reserves dynamics appeared to be negative and significant. GDP dynamics proxied by industrial production index was not confirmed as a significant factor.