The Determinants of the Foreign Exchange Rate in Russia

The objective of this paper is how factors such as government expenditure, oil prices, interest rate, import and export may affect the real exchange rate of Russian ruble. In terms of policy maker, this paper implicates the important factors of the real effective exchange rate in Russia and how to manage and stable the FX, in terms of investors, it suggests the advanced tools for predicting the foreign exchange rate. This paper uses International Monetary Fund, OECD and Rosstat quarterly data and cover the period starting from year 1995 to 2016. The methods and results of this paper are following. Real Effective Exchange Rate, Interest Rates of Russian financial market (IR), Oil price (OIL), Government consumption Expenditure(GE), Inflation(INF), Export (EXP) and Import(IMP) First of all, in Russia, government expenditures(GE) are another important factor in the real exchange rate. Second, export(EXP) is a significant factor on the exchange rate in Russia. Third, the variation of oil price(OIL) and inflation(INF) influences the fluctuation of exchange rate in Russia but not much in recent period. On the other hand, import(IMP) and interest rates(IR) are insignificant factors affecting the exchange rate in terms of the statistics. There is no clear relationship between RTS (Russian Stock Market Index), Gold & Dollar reserves and real effective exchange rate. Government expenditure and Export is critical path in influencing the foreign exchange rate in Russia. The fiscal policy is more effective than the monetary policy in terms of the real effective exchange rate in Russia. Oil quantity(EXP) is much more influencing factor than oil price in terms of the foreign exchange rate.