Latest Articles from Russian Journal of Economics Latest 1 Articles from Russian Journal of Economics https://rujec.org/ Thu, 28 Mar 2024 12:34:15 +0200 Pensoft FeedCreator https://rujec.org/i/logo.jpg Latest Articles from Russian Journal of Economics https://rujec.org/ Central bank policy under significant balance-of-payment shocks and structural shifts https://rujec.org/article/27971/ Russian Journal of Economics 2(3): 246-278

DOI: 10.1016/j.ruje.2016.09.001

Authors: Andrey Sinyakov, Ksenia Yudaeva

Abstract: In this paper, we analyze a number of monetary and FX policy alternatives using the model of a small open oil-exporting economy hit by severe balance-of-payment shocks, such as those that simultaneously affected the Russian economy in 2014–2015. For our purposes, we modify Romer's (2013) IS-MP general equilibrium model by adding a structure similar to the Russian economy (tradables and oil vs. non-tradables). In the model, we consider an optimal policy mix that includes a floating exchange rate, FX liquidity provision by a central bank and temporary tightening of monetary policy. The flexible exchange rate works as a shock absorber, helping restore aggregate demand and domestic production. If inflation expectations are not anchored, contractionary monetary policy helps to stabilize them. Financial stability risks are addressed by lending FX liquidity to the banking sector.

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Research Article Wed, 31 Aug 2016 00:00:00 +0300