Macroeconomic performance of oil price shocks in Russia

TL;DR

This paper analyzes how oil price fluctuations from 2004 to 2021 have affected Russia's macroeconomic indicators, revealing that monetary policy is more responsive than fiscal policy, with significant impacts on inflation, exchange rate, and industrial production.

Contribution

It provides an empirical assessment of the differential impacts of oil price shocks on Russia's macroeconomic variables using a VAR model, highlighting the dominance of monetary channels.

Findings

Monetary channel is more responsive to oil shocks than fiscal channel.

Industrial production is strongly pro-cyclical to oil price shocks.

Higher oil price volatility pressures the ruble, inflation, and interest rates.

Abstract

Oil price fluctuations severely impact the economies of both oil-exporting and importing countries. High oil prices can benefit oil exporters by increasing foreign currency inflow; however, an economy can suffer from a weakening of the manufacturing sectors and experience a significant downtrend in the country's price competitiveness as the domestic currency appreciates. We investigate the oil price fluctuations from Q1, 2004 to Q3, 2021 and their impact on the Russian macroeconomic indicators, particularly industrial production, exchange rate, inflation and interest rates. We assess whether and how much the Russian macroeconomic variables have been responsive to the oil price fluctuations in recent years. The outcomes from VAR model confirm that the monetary channel is more responsive to oil price shocks than the fiscal one. Regarding fiscal channel of the oil price impact, industrial production is strongly pro-cyclical to oil price shocks. As for the monetary channel, higher oil price volatility is pressuring the Russian ruble, inflation and interest rates are substantially counter-cyclical to oil price shocks.