The Ruble between the Hammer and the Anvil: Oil Prices and Economic Sanctions

31 Pages Posted: 12 Jun 2015

See all articles by Christian Dreger

Christian Dreger

German Institute for Economic Research (DIW Berlin); European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Jarko Fidrmuc

Zeppelin University Friedrichshafen

Konstantin A. Kholodilin

German Institute for Economic Research (DIW Berlin)

Dirk Ulbricht

German Institute for Economic Research (DIW)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2015

Abstract

The exchange rate fluctuations strongly affect the Russian economy, given its heavy dependence on foreign trade and investment. Since January 2014, the Ruble lost 50% of its value against the US Dollar. The fall of the currency started with the conflict between Russia and Ukraine. The impact of the conflict on Russia may have been amplified by sanctions imposed by Western countries. However, as Russia is heavily dependent on exports of natural resources, the oil price decline starting in Summer 2014 could be another factor behind the deterioration. By using high frequency data on nominal exchange and interest rates, oil prices, actual and unanticipated sanctions, we provide evidence on the driving forces of the Ruble exchange rate. The analysis is based on cointegrated VAR models, where fundamental long-run relationships are implicitly embedded. The results indicate that the bulk of the depreciation can be related to the decline of oil prices. In addition, unanticipated sanctions matter for the conditional volatility of the variables involved.

Keywords: Military conflict, sanctions, oil prices, Ruble depreciation

JEL Classification: C22, F31, F51

Suggested Citation

Dreger, Christian and Fidrmuc, Jarko and Kholodilin, Konstantin A. and Ulbricht, Dirk, The Ruble between the Hammer and the Anvil: Oil Prices and Economic Sanctions (June 2015). DIW Berlin Discussion Paper No. 1488. Available at SSRN: https://ssrn.com/abstract=2617202 or http://dx.doi.org/10.2139/ssrn.2617202

Christian Dreger (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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

Konstantin A. Kholodilin

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Dirk Ulbricht

German Institute for Economic Research (DIW) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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