Russian Monetary Policy: Assessing the Track Record
Economic Systems, Vol. 22, No. 2 (June 1998)
Posted: 16 May 1998
In Russia, monetary stabilization has gradually been achieved since early 1995. However, the conduct of monetary policy remains a trial-and-error process. The present paper estimates a money demand function. It finds that long-run money demand has remained relatively stable, but short-run fluctuations are substantial, and further portfolio adjustments are likely. Also, the money supply process has been substantially affected by fiscal outcomes and by the exchange rate policy. The success of monetary stabilization will thus mainly rest on three pillars. First, fiscal consolidation has been the key factor behind macroeconomic stabilization and will remain of crucial importance for the future. Drastic measures to cut the budget deficit are thus needed. Second, because financial sector stability is an important condition for monetary stability, measures to restructure the banking sector, together with institutional and structural reforms, need to be pursued. Third, monetary policy must be transparent in order to reduce its potentially destabilizing impact on the private sector.
JEL Classification: E5, P42
Suggested Citation: Suggested Citation