Estimation of the Monetary Policy Shock`s Influence on the Russian Economy

Abstract

The paper is devoted to the identification of monetary policy shock and evaluation of its impact on the main macroeconomic variables of the Russian economy. To solve this problem we use the methodology of the structural vector autoregression model. For estimation we use monthly data on the industrial production index, consumer price index, monetary base and other macroeconomic indicators for the Russian Federation. To control for possible endogenous money supply reaction to the changes in external economic conditions we include foreign economic variables into the model: the oil price, the index of global economic activity and the risk premium on investments in domestic assets. We also utilize the small open economy concept and treat the first two indicators of external economic conditions in the econometric model as exogenous variables.

According to the results monetary policy shocks have a statistically significant impact in the short-run both on the real sector of the Russian economy and on the nominal variables. Positive monetary policy shock leads to a temporary increase in output, the volume of lending, the price level, as well as a reduction in nominal interest rates on loans. In the paper we evaluate the contribution of monetary policy shocks to the dynamics of the Russian macroeconomic variab­les. According to the results monetary policy shocks lead to cyclical fluctuations in economic activity around the trend growth. In particular, the policy of preventing ruble appreciation (compared to a more flexible exchange rate regime) before the crisis of 2008–2009 years made a positive contribution overheating of the Russian economy. The policy of gradual devaluation had a negative impact on output and strengthened economic downturn. At the same time the contribution of monetary policy shocks to the variance of macroeconomic variables is small.