Optimal Exchange Rate Policy Under Balance of Payment Shock

Student: Gubkova Ekaterina

Supervisor: Oxana A. Malakhovskaya

Educational Programme: Applied Economics (Master)

Year of Graduation: 2018

To study on optimality of exchange rate policy under oil price shock, which could be considered as a balance of payment shock, we use a Bayesian approach applying to a DSGE model of Russian economy. We try to develop an answer to a question whether the transition to a free-floating exchange rate regime was a correct decision made by the Bank of Russia. To this end, we investigate the dynamic effect of a negative oil price shock to an economy estimated on Russian data. We conduct an analysis of impulse response functions of key macroeconomic variables to this shock under different exchange rate regime. Our results suggest that the optimal exchange rate policy for the case of Russian economy is a free-floating exchange rate regime.

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