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Revision of the optimal fiscal and monetary policies rules in Russia under the global financial crisis

2009

This project provides a complex analysis of the optimal macroeconomic policy in Russia under the global financial crisis. Policy rules, the main fiscal and monetary instruments and different forms of strategic interaction between the government and the central bank are the focus of the investigation. The aim of the research is a complex analysis of the problems of building an optimal macroeconomic policy in Russia within the context of the crisis in both the financial and real sectors of the economy.

As part of the project, data was collected and facts on fiscal and monetary policy in Russia during the crisis period were systematized. To provide policy recommendations for the Russian government an indicator of structural budget balance was calculated.

This research includes the analysis of macroeconomic policy rules in the context of the global financial crisis. We built a model of an export-oriented economy, which included stylized facts for Russian macroeconomic policy. As a result, we analyzed fiscal and monetary policies in Russia during the global financial crisis. Some practical recommendations for the future macroeconomic policy in Russia were presented.

We explored the idea that as in the pre-crisis period, fiscal policy was probably passive during the global financial crisis. At the same time, an active monetary policy made a large contribution to overcoming the crisis: the policy of smooth devaluation helped Russian banking system to recover, but did not help to overcome the crisis of non-payments. The analysis of equilibrium in the model of an export-oriented economy shows that the preferred policy mix is when the government and the central bank choose reasonably expansionary policies.  The choice of a monetary policy regime is determined by the output elasticity of the balance of payments . If the import is highly sensible to the GDP, it is better to use the growth rate of money as the main target of the central bank. If the output elasticity of balance of payments is low, the central bank should target the exchange rate.

This analysis shows that a coordinated fiscal and monetary policy can minimize the social losses from the devaluation of a national currency.

The calibration of the dynamic stochastic general equilibrium model on  Russian data proved that floating exchange rate regime is more preferable than the fixed exchange rate regime for any negative shock (foreign interest rate increase, export decrease).

The general equilibrium model of an export-oriented economy and the model of interaction between the government and the central bank with adaptive learning mechanism were explored. These models can be used for a deep and comprehensive analysis of macroeconomic policy in Russia.