The impact of oil price volatility on the macroeconomy in Russia

Since the beginning of the 1980s a large number of studies using a vector autoregressive (VAR) model have been made on the macroeconomic effects of oil price changes. However, surprisingly few studies have so far focused on Russia, the world’s second largest oil exporter. The purpose of this paper is to empirically examine the impact of oil prices on the levels of inflation, real effective exchange rate and real GDP for Russia using the VAR model. The time span covered by the series is from 1995:Q1 to 2009:Q3, giving 59 observations. The analysis leads to the finding that a 1% increase (decrease) in oil prices contributes to the growth (decline) in real GDP by 0.44% in the long run. Likewise, we find that in the short run (4 quarters) rising oil prices not only stimulate inflation and economic growth negatively and positively, respectively, but also induce real effective exchange rate appreciation.