Estimation of the Equilibrium Real Exchange Rate in Russia: Trade-Balance Approach

No w0102, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: The paper estimates the equilibrium real exchange rate (ERER) in Russia for 1995-20065 using the partial-equilibrium version of the trade-balance approach. The three-good framework is applied, allowing distinction between the RER for imports and RER for exports. The terms of trade are viewed as exogenous. Russia’s export demand is regarded as infinitely price elastic, implying the estimation of export supply function. Russian imports are assumed to be demand determined. The estimation of the trade-volume equations is based on the search of cointegrating relationships. The import elasticities are in line with estimates obtained in other studies. The estimations for the export supply equation confirm “supply elasticity pessimism”. The ERER simulations reveal the degree of rouble overvaluation of 25%-40%, depending on the measure of the RER used, before the August 1998 crisis. In recent years, given the surge in oil prices and pro-active exchange rate policy of the Bank of Russia, the rouble appears to be substantially undervalued. In 2004-2006, given the surge in oil prices and pro-active exchange rate policy of the Bank of Russia, the rouble appears to be substantially undervalued: by 40-70% on average, depending on the measure of the RER used.

Keywords: Equilibrium Real Exchange Rate; Trade Elasticities; Russia (search for similar items in EconPapers)
JEL-codes: C22 E52 F4 (search for similar items in EconPapers)
Pages: 84 pages
Date: 2007-05
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Estimation of the Equilibrium Real Exchange Rate in Russia: Trade-Balance Approach (2007)
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