Analysis of Exchange Rate Dynamics in Russia

This paper examines the exchange rate dynamics in Russia using the BEER approach and the new concept of index that replicates the exchange rate. Eight variables for BEER estimation were used: RGBI index; RVI index; terms of trade; MOEX index; difference between interest rates in Russia and the USA; volatility of foreign exchange swaps; price of oil and international reserves of Central Bank of Russia. The time period was from 01.01.2015 till 01.05.2021. The estimation procedure revealed the cointegration relationship among mentioned features, where only one variable had a counterintuitive sign. Whereas the VECM model revealed the significance of four variables out of eight. Five features’ coefficients had signs that support theoretical rationale. Two indices were built using the cointegration relationship and vector of coefficients produced by VECM. Both of replications of exchange rate managed to trace the shocks at the currency market on the observed period. The effect of modelled shocks coming from different sectors of economy on the foreign currency market was correctly captured and identified by the indices.