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Oil Price, Monetary Policy and Bond Index: an Analysis of Causality

Student: Aleksandr Ermolich

Supervisor: Alexander Skorobogatov

Faculty: St.Petersburg School of Economics and Management

Educational Programme: Applied Economics and Mathematical Methods (Master)

Year of Graduation: 2020

Crude oil is one of the most important commodities in the world economy, which highly affect business and financial cycles and therefore rise the concerns of policymakers, economists and investors. In this paper, we empirically revealed and analyzed the relationship between oil prices, the exchange rate of the ruble to U.S. dollar, key rate of the Central Bank of Russia, and the Russian bond market using a structural VAR model. In our sample we used weekly data from October 2013 to April 2020. Our main results of research can be summarized as follows: First, oil price shocks have a significant impact on changes in Russia's monetary policy and Russian government bond index (RGBI). Second, exchange rate and key rate shocks associated with oil price shocks are accounted for 37% of weekly fluctuations in the Russian government bond index over a 24-week period. Finally, positive shocks on crude oil market contribute to increase in yields on Russian bond market.

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