The Equilibrium Real Exchange Rate in a Commodity Exporting Country: The Case of Russia, Issues 2003-2093
International Monetary Fund, May 1, 2003 - Business & Economics - 21 pages
Questions about external competitiveness, exchange rate misalignment, and the appropriate exchange rate policy feature prominently in the Russian policy debate. This paper furthers the debate by estimating empirically Russia's equilibrium real exchange rate (ERER)-that is, the rate consistent with the long-run economic fundamentals-and sheds light on the extent to which exchange rate policy should be changed. The paper confirms that the ERER reflects both productivity and the terms of trade. It suggests that Russia should target a significant medium-term current account deterioration and a real appreciation perhaps exceeding 10 percent. However, this latter number remains very sensitive to the assumed long-run oil prices.
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actual RER advanced transition economies Augmented Dickey-Fuller test Balassa-Samuelson effect capital flows Cointegrating CPI-based REER current account deficit current-account deterioration Developing Countries Dickey-Fuller test statistic effective exchange rate Elasticity Of Imports elasticity with respect Equilibrium Exchange Rates Equilibrium Real Exchange equilibrium RER exchange rate policy external fitted RER fundamental IMF Working Paper impact implied real appreciation increase International Monetary Fund Lane and Milesi-Ferretti level Null Hypothesis long-run elasticity long-run ERER long-run oil price MacDonald MAXLAG=9 medium-term world oil methodology monetary policy non-transition emerging markets nontradables percent of GDP percent per annum Phillips-Perron test policy variables post-crisis pre-crisis level price of $20.1/barrel real appreciation lies Real effective exchange Real Exchange Rate reflecting relative price Russian oil prices significant Slek standard errors structural break dummy structural reforms t-Stat Prob t-Statistic Prob TEMP terms of trade Test critical values U.S. dollar unit root Bandwidth unit root Lag Urals oil price world oil price