Drivers of Exchange Rate Dynamics in Selected CIS Countries: Evidence from a FAVAR Analysis

16 Pages Posted: 9 Jul 2009

See all articles by Christian Dreger

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Jarko Fidrmuc

Zeppelin University Friedrichshafen

Date Written: March 2009

Abstract

We investigate the likely sources of exchange rate dynamics in selected CIS countries (Russia, Kazakhstan, Ukraine, Kyrgyzstan, Azerbaijan, and Moldova) over the past decade (1999-2008). The analysis is based on country VAR models augmented by a regional common factor structure (FAVAR model). The models include nominal exchange rates, the common factor of exchange rates in the CIS countries, and global drivers such as gold, oil and share prices. Global, regional and idiosyncratic shocks are identified in a standard Cholesky fashion. Based on the decomposition of the variance of forecast errors, their relevance for exchange rates is explored. As a quite robust finding, CIS exchange rates have become more vulnerable to global shocks towards the end of the sample.

Keywords: Exchange rates, CIS countries, financial crisis, FAVAR models

JEL Classification: F31, C22, G15

Suggested Citation

Dreger, Christian and Fidrmuc, Jarko, Drivers of Exchange Rate Dynamics in Selected CIS Countries: Evidence from a FAVAR Analysis (March 2009). DIW Berlin Discussion Paper No. 867, Available at SSRN: https://ssrn.com/abstract=1431320 or http://dx.doi.org/10.2139/ssrn.1431320

Christian Dreger (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

Jarko Fidrmuc

Zeppelin University Friedrichshafen ( email )

Am Seemooser Horn 20
Friedrichshafen, 88045
Germany

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