What does the Bank of Russia target?

Transcription

1 SBERBANK OF RUSSIA CENTRE FOR MACROECONOMIC RESEARCH, SBERBANK 5 Augus 2010 Wha does he Bank of Russia arge?

2 The crisis has promped he Russian Cenral Bank (CBR) o review is policies drasically. New frameworks o provide he banking secor wih liquidiy have been developed and field-esed, including a variey of sandard and fairly non-sandard ani-crisis insrumens. Oher changes are under way, oo. Specifically, he Bank of Russia has enhanced he ransparency of is moneary policy. Ineres rae changes are now subjec o a clear schedule and are accompanied by explanaions and commens. The exchange rae has become more volaile (a leas on he face of i); he currency inervenion sysem has changed. In his conex, he CBR coninues o reierae in is key saemens an inenion o adop inflaion argeing. Accordingly, he changes menioned above may be reaed as seps in ha direcion. Has he Bank of Russia really changed is key objecive during he crisis owards inflaion argeing? In his paper, we will address his quesion by esimaing Cenral Bank s moneary policy by he so-called forwardlooking Taylor rule. The Taylor rule argues ha a cenral bank modifies he value of is insrumen in view of is expecaions of fuure values of he parameers i is argeing. Here we pursue a fairly flexible approach, by using wo poenial insrumens of moneary policy (repo rae and moneary base) and hree ypes of independen variables, which may affec he policy of he CBR (inflaion, oupu and exchange rae). We ake he repo rae for he ineres rae, because he CBR provides liquidiy o he banking secor hrough his paricular ool. Moneary base may be affeced boh by currency marke inervenions and by governmen relaed paymens (from or o he Reserve Fund or Naional Welfare Fund). As far as independen variables are concerned, i is eviden ha he Bank of Russia akes accoun of no only inflaion, bu also of exchange rae and GDP growh. Our resuls demonsrae ha he CBR s policy did change during he crisis. The role of he exchange rae as a policy facor diminished, he role of inflaion and, paricularly oupu, increased. For hese reasons i would be premaure o argue ha here was a ransiion o inflaion argeing. Raher, he CBR sared making aemps o affec oupu hrough he credis insead of he currency policy ransiion mechanism previously used, in a move o sall appreciaion of he currency. Esimaes of he CBR s argeing funcion may be used no only for analyical purposes, bu also in forecasing is fuure policies. Specifically, hey help o undersand which ineres policy he Cenral Bank of Russia will be carrying ou over he nex several monhs. Our calculaions show ha he ineres rae, i.e. he repo rae, is close o wha may be calculaed from he esimaed rule. This nowihsanding, here are sill opporuniies for a minor decrease in summer. On he oher hand, we forecas ha by he end of he year, as inflaion grows, he appropriae condiions will be in place for he raes o be raised. However, given ha his increase will no be a dramaic one, he Bank of Russia may decide o pospone his decision in he ineress of GDP growh simulaion. Ksenia Yudaeva Direcor, Cenre for Macroeconomic Research, Sberbank Nadezhda Ivanova Head of Forecasing, Cenre for Macroeconomic Research, Sberbank Marina Kamenskikh Senior Exper, Cenre for Macroeconomic Research, Sberbank Cenre for Macroeconomic Research 2

3 I. Bank of Russia arges In accordance wih uniform moneary policy guidelines, he Bank of Russia pursues ani-inflaion policies o suppor growh of he economy wih regard o key macroeconomic indicaor dynamics. I also conrols he exchange rae, smoohing is flucuaions relaive o he currency baske. I follows herefore ha he CBR is coninually making choice of he exising key prioriies, and i is no always clear which aim i is pursuing a he momen. As he economy recovers, i is of paramoun imporance o deliver he appropriae macroeconomic policy. If he CBR s policy is oo ough, i may slow down growh; if i is oo easy, i may resul in overheaing. In his paper we ry o idenify wha influences he CBR policy; which macroeconomic parameers are he mos imporan, and o wha exen. For his purpose, we esimae is moneary policy using he so-called forward-looking Taylor rule, which argues ha he Cenral Bank changes he value of is insrumen based on is expecaions of he arge variables, and ha he Cenral Bank may shape such expecaions using he available daa. Following he classical principle of moneary policy, he CBR ses he ineres rae or moneary base value in response o he expeced movemens in inflaion or oupu, in order o regulae deviaion of hese parameers from arge values. In addiion, here is a modificaion of he Taylor rule for open economies, in which he exchange rae is inroduced as an addiional arge variable. This modificaion is mos likely relevan for Russia, given he role played by he foreign secor in is economy and he aenion given by he CBR o he exchange rae. Finally, i should be menioned ha he CBR avoids any sharp urns in is policy and modifies he values of is insrumens, e.g. he ineres rae, gradually. Muliple sudies show ha he policies of cenral banks in differen counries 1, including Russia 2, may be described by one or anoher version of he Taylor rule. As regards he choice of he moneary policy insrumen (he variable conrolled by he CBR o influence he economy), here are several opions. The ineres rae feauring in he classical Taylor rule is he mos relevan insrumen for he developed counries. Moneary aggregaes may also be reaed as moneary policy insrumens 3, which makes sense in esimaing he Taylor rule in he case of Russia, where he CBR influence on he ineres rae has radiionally been limied. We aemp o esimae o wha exen he CBR s policy over he long period of ime (from he beginning of 2003 o his momen, including he crisis) could be formalised wihin he framework of he forward-looking Taylor rule, which assumes ha he CBR changes i s insrumen in response on he expeced changes in fundamenal economic indicaors. By an esimaion of he Taylor rule for he CBR over a long period of ime, we are able o undersand o which exen he recen moves of he CBR comply wih ha rule. We also offer a forecas of he mos likely changes in 1 Clarida, R., Gali, J., Gerler, M. L. (1997): Moneary Policy Rules and Macroeconomic Sabiliy: Evidence and Some Theory, NBER Working Papers Clarida, R., Gerler, M. L. (1996): How he Bundesbank Conducs Moneary Policy. NBER Working Paper Drobyshevsky S., Kozlovskaya A. (2002): Domesic Aspecs of Russia s Moneary Policy. Vdovichenko А, Voronina V. (2004): Moneary Policy Rules of he Russian Cenral Bank. Drobyshevsky S., Trunin P., Kamenskikh M.: An Analysis of he Moneary Policy Rules of he Russian Cenral Bank in McCallum, B. T. (1982): Money sock conrol wih Reserve and Ineres Rae Insrumens under Raional Expecaions. Bernake, B. S., Mihov, I. (1998): The Liquidiy Effec and Long-run Neuraliy. Cenre for Macroeconomic Research 3

4 Cenral Bank s policies for he second half of 2010 and for 2011, under differen scenarios of economic developmen. II. Moneary policy insrumens of he Cenral Bank We assume ha he CBR delivers is policy by affecing he value of he insrumen. The insrumen is a moneary policy indicaor wih is value on he one hand, largely conrollable by he Bank of Russia hrough is own operaions, such as ineres raes and provisioning requiremens changes, open marke ransacions, currency inervenions, direc qualiaive resricions and bond issuance in is own name; on he oher hand, he value of he insrumen should affec key macroeconomic indicaors hrough ransmission mechanisms of he moneary policy. We consider he aucion-based direc repo rae and he moneary base growh rae as he Cenral Bank s insrumens. We chose he moneary base as a moneary aggregae mos affeced by Cenral Bank s acions. Inervenions on he currency marke and governmen relaed paymens (o or from he Reserve Fund or Naional Welfare Fund) influence he level of moneary base. Several raes adjused by he CBR from ime o ime (such as repo, iner-bank marke and CBR deposi raes) may be reaed as a proxy for he CBR ineres rae. There may be doubs, however, as o wheher iner-bank marke rae may be regarded as a CBR insrumen. I is well known ha iner-bank lending mechanism is opaque and ha he marke is well segmened. Therefore, Cenral bank's open marke operaions have limied effec on inerbank marke, which is confirmed by high volailiy of he iner-bank rae. A regression analysis of he Taylor rule (see equaion 1) demonsraes ha he iner-bank rae does no reac in a saisically significan manner o deviaions from arge values of expeced macroeconomic indicaors (inflaion, oupu and exchange rae). The regression analysis also shows ha he CBR deposi rae is no sufficienly sensiive o he expeced changes in fundamenal indicaors. Consequenly, his policy insrumen couldn be described by Taylor rule. This resul comes as largely predicable, because CBR deposi operaions se he lower limi for ineres raes in he economy and ac as a mechanism ha absorbs free bank liquidiy. On he oher hand, direc repo operaions are a sandard mechanism hrough which he Russian CBR provides large amouns of liquidiy o he banking secor (daily ransacions averaging RUB 31,482 billion). I played a very significan role during he crisis in supporing he banking secor. Toal ransacions via his insrumen in 2009 amouned o RUB 24,986 billion agains RUB 7,730 billion in In our calculaions, we use he average rae of direc repo aucions. We disregard he fixed rae direc repo sessions owing o low ransacion volumes (cf. RUB 206 million and RUB 119 rillion on direc repo aucions in June 2010). The resuls of he regression analysis presened below demonsrae ha repo rae movemens can acually be described by he forward-looking Taylor rule. Cenre for Macroeconomic Research 4

5 Fig. 1. Ineres rae dynamics Refinancing rae REPO rae Inerbank rae ноя 2002 май 2003 ноя 2003 май 2004 ноя 2004 май 2005 ноя 2005 май 2006 ноя 2006 май 2007 ноя 2007 май 2008 ноя 2008 май 2009 ноя 2009 май 2010 III. Taylor rule esimaion The Taylor rule may be applied o he ineres rae in he following manner (see Appendix for deails): 1 1 e e e * * * * r r ( ) r y y er er, (1) where r* is he CBR nominal ineres arge of y e, π e, er e are he expeced oupu, inflaion and real exchange rae у*, π *, er* are he arge oupu, inflaion and exchange rae of he Cenral Bank. Similarly, he Taylor rule for he moneary base used as a CBR policy insrumen looks as follows: 1 1 e e e * * * * m m ( ) m y y er er, (2) where m means he acual moneary base growh rae, and base growh rae. * m means he arge value of moneary The Taylor rule esimaes for repo ineres rae and moneary base (equaions (1), (2)), provided in Table 1, were obained using he Generalised Mehod of Momens (see Appendix). We esimae he Taylor rule for ineres rae and moneary base for he period from January 2003 o April In order o undersand wheher or no he Cenral Bank s policy changed afer he crisis, we also esimae he model for he pre-crisis period, from January 2003 o April Calculaions show ha here was a shif in Cenral Bank s prioriies: afer he crisis, CBR sared o focus more on supporing oupu and conrolling inflaion, giving less aenion o he exchange rae sabiliy. Also, changes in Cenral Bank s ineres rae afer he crisis became more inerial, wih less sharp flucuaions. Cenre for Macroeconomic Research 5

6 Table 1. Taylor rule esimaion resuls Enire period: Pre-crisis period: Enire period: Pre-crisis period: Parameer Jan Apr Jan Apr Jan Apr Jan Apr Smoohing ρ 0,671 0,642 0,19 0,24 Inflaion β 1,109 1,053-3,57-3,83 Oupu γ 4,204 0,542-0,448-9,029 Real exchange rae φ -0,508-0,698 0,744 1,083 Table 1 suppors hese conclusions. In he ineres rae equaion (esimaed across he enire period, including he crisis), all parameer s are saisically significan. I follows ha hroughou he period in review he Cenral Bank, while seing he ineres raes, was aking accoun of he changes in expeced inflaion, oupu and real exchange rae. Furhermore, he ineres rae policy is fairly inerial, which is demonsraed by he parameer before he firs lag (ρ= 0,667). The CBR was aiming o smooh he ineres rae flucuaions and o avoid excess volailiy. In he Taylor rule, esimaed for he pre-crisis period, parameer ρ is slighly lower (0,642). An analysis of Taylor rule parameers, esimaed for wo periods, shows ha supporing oupu unrelaed o real exchange rae changes became a key prioriy for he CBR immediaely afer he crisis. In he pre-crisis model he ineres rae does no reac significanly o deviaions from he oupu arge value; he oupu for he enire period, however, urns ou o be no only saisically significan, bu also comes in he Taylor rule wih he highes absolue parameer value (4,2). The Cenral Bank s reacion o inflaionary flucuaions changed afer he crisis: he parameer for inflaion for he enire period was higher han in he model exclusively for he pre-crisis period. Furhermore, on he basis of he Taylor rule esimae for he enire period, he Bank s inflaion policy may be described as igh. The parameer β value was > 1, which means ha he Cenral Bank s inenion was o change boh nominal and real ineres raes (see Appendix), hereby affecing demand and inflaion. On he oher hand, before he crisis, he CBR was focusing more on real exchange rae movemens: in he equaion esimaed on pre-crisis level, he absolue value of he parameer for he real exchange rae (-0,698) is higher han in he equaion for he enire period (-0,508). These resuls conform o he saemens of he CBR regarding gradual ransiion o he so-called modified inflaion argeing, a policy ha has proved o be efficien for he developing counries heavily dependen on rade revenue flows. The modified inflaion argeing policy assumes ha alongside he key prioriy (which is mainaining susainable inflaion), he moneary auhoriies also reac o exchange rae Cenre for Macroeconomic Research 6

7 flucuaions, bringing down he volailiy of economic indicaors dependen on real exchange rae flucuaions, in view of he conribuion of exchange rae flucuaions o inflaion. An esimaion of moneary base equaions has shown he CBR did no inend o suppor oupu rough conrolling moneary base growh eiher before or afer he crisis (In boh he equaions oupu parameer s appeared o be insignifican). Inflaion was he key facor affecing he moves of he CBR in conrolling he moneary base: he appropriae parameer in he Taylor rule equaion, esimaed for he enire period, is minus 3,57 (agains minus 3,83 for he period before he crisis). Similar o he ineres rae model, he Cenral Bank s focus on he exchange rae weakened afer he crisis, he appropriae parameer decreased from (in he pre-crisis period equaion) o (in he enire period equaion). I s worh menioning ha when conrolling moneary base he CBR ries o affec exchange rae in he curren raher han fuure period (unlike in he model wih ineres rae). Also, he rae of moneary base growh appears o be more volaile as compared o he ineres rae (even if we ake ino accoun seasonal facors): he Taylor rule for moneary base yields a lower smoohing parameer. Furhermore, in order o deermine he impac of he crisis on moneary policy indicaors, we use a logical variable for he mos acue phase of he crisis when esimaing he Taylor rule for he enire period (November 2008 Sepember 2009). According o he resuls, he ineres rae during he crisis was abou 1.3 bp higher han i would be if we ake ino accoun only fundamenal facors (on changes in oupu, inflaion and exchange rae); whereas he moneary base monhly growh was 2.8 bp lower han migh be explained by fundamenal facors. IV. Forecass On he basis of model esimaes, we can forecas he rae, assuming ha he CBR will pursue is policy, following he esimaed Taylor rule and guided by he expeced values of fundamenal indicaors. We consider several scenarios for he Russian economy unil he end of 2010 and for 2011, based on he forecass of he Minisry of Economic Developmen (MED) and Sberbank Cenre for Macroeconomic Research (CMR) (see Russian Economy Developmen Forecas for and ). MED offers several macroeconomic scenarios for Russia. In he pessimisic scenario (1а), GDP growh in 2010 is 3.1%; in 2011, 2.6%. In he opimisic (1с), he Russian economy grows by 4.5% in 2010 and by 3.7% in We also provide analysis for hree CMR forecas versions: base-line, pessimisic, and opimisic. In he base-line version, GDP growh in 2010 and 2011 is 4.4% and 3.6% respecively; inflaion, 6.8% and 7.1%, whereas he Rouble appreciaes in boh nominal and real erms. Table 2 shows he key parameers for he scenarios we are using. We calculaed GDP s deviaion from he long-erm rend in differen scenarios. To deermine he arge inflaion rae we use he inflaion values saed by he CBR as qualiaive benchmarks of moneary policy (2010, 9%; 2011, 7%; 2012, 5%.). According o CBR saemens, zero flucuaion in he real exchange rae (er*=0) may be regarded as he objecive of is policy in hese years. Cenre for Macroeconomic Research 7

8 We go he ineres rae he CBR would se according o he esimaed rule in all scenarios. The resuls are summarized in Table 3. According o all scenarios Sepember-Ocober 2010 should be aken for he criical momen in he ineres rae dynamics wih he CBR saring o raise he ineres rae expecing furher growh of he economy and rising inflaionary expecaions. Cenre for Macroeconomic Research 8

9 Table 2. Russian economy developmen forecass Scenario Year Real GDP growh rae, % Inflaion (CPI), % $/EUR rae Average annual bi-currency baske, RUB Rouble appreciaion in real erms CMR base-line ,4 6,8 1,29 34,2 12, ,6 7,1 1,29 32,6 9, ,9 7,4 1,32 31,9 8,6 CMR pessimisic ,0 7,5 1,22 35,0 9, ,9 6,9 1,00 35,6 1, ,8 8,9 1,10 39,1 1,7 CMR opimisic ,2 6,6 1,31 33,8 15, ,5 7,1 1,32 30,7 14, ,7 6,9 1,35 28,7 10, ,1 6,5 1,30 34,1 12,5 MED 1а ,6 6,0 1,30 33,3 6, ,4 5,5 1,35 33,7 0, ,5 6,5 1,30 33,8 13,6 MED 1с ,7 6,0 1,30 32,6 10, ,9 5,5 1,35 30,8-1,1 In CMR base-line scenario, he ineres rae in December 2010 is 5.75 %: he average repo rae for 2010, 5.68%; he average for June 2001, 6.04%. In June 2010 he average repo rae was 5.10%. A comparison of ineres rae movemens in hree CMR scenarios (see Fig. 2) shows ha in CMR pessimisic he raes are higher, because (despie slow growh and low inflaion) srong depreciaion of he currency (which pulls he rae down) makes he CBR raise he raes, and ha effec proves o be dominaing. Cenre for Macroeconomic Research 9

10 Fig. 2. Direc aucion-based repo forecas raes CMR, pessimisic scenario CMR, opimisic scenario CMR, basic scenario Oc.09 Nov.09 Dec.09 Jan.10 Feb.10 Mar.10 Apr.10 May.10 Jun.10 Jul.10 Aug.10 Sep.10 Oc.10 Nov.10 Dec.10 Jan.11 Feb.11 Mar.11 Apr.11 May.11 Jun.11 In MED pessimisic (1a), he CBR rae reaches 5.94% in December 2010, and 6.22% in June MED opimisic (1с) also implies rae growh in he near fuure, bu weaker han in pessimisic. In opimisic, he posiive effec on he rae caused by fas growh is lower han he impac of a sronger Rouble, which makes he CBR keep he raes low. Thus, he fac ha he CBR coninues o focus on he exchange rae leads o somewha paradoxical conclusions if he rae movemens are compared in differen scenarios from he poin of view of inerpreaion of he classical Taylor rule (which includes only inflaion and oupu). The recen evens demonsrae ha such a developmen is possible: hus, a he peak of 2008 early 2009, when moneary auhoriies in mos counries were bringing ineres raes down, he CBR was rying o use high ineres raes in a move o proec he currency from devaluaion. Cenre for Macroeconomic Research 10

11 Table 3. Ineres rae forecas values Repo rae, % Enire period: Jan Apr Pre-crisis period: Jan Apr MED, pessimisic (1a) December ,94 5, average 5,75 5,70 June ,22 5,90 MED, opimisic (1c) December ,88 5, average 5,74 5,64 June ,16 5,69 CMR December ,91 5, average 5,75 5,57 June ,15 5,58 CMR pessimisic December ,12 6, average 5,86 5,84 June ,34 6,19 CMR opimisic December ,81 5, average 5,71 5,57 June ,13 5,49 Cenre for Macroeconomic Research 11

12 Appendix1 Taylor rule is he rule assumes ha he Cenral bank ses nominal arge ineres rae r * in response o divergences of acual variables he bank is concerned abou from heir arge inflaion values: e e e r r y y er er * * * * * where r* is he equilibrium nominal ineres rae, argeed by he cenral bank; y e, π e, er e are he expeced oupu, inflaion, and exchange rae; and у *, π *, er * are he arge oupu, inflaion and exchange rae. Given he equilibrium beween he expeced and he arge indicaors, ineres rae r * is equal o r*. The equaion for he real ineres rae looks as follows: 1 rr r e rr * e * y e y * er e er *, where * rr is he equilibrium arge real ineres, * * * rr r. If 1 0, hen he increase in he nominal ineres rae as a response o anicipaed growh in inflaion resuls in a higher real rae and, laer, in a shrinking of demand and inflaion. When β>1, his is an indicaor of wha is called acive moneary policy. I s also assumed ha he Cenral bank avoids sharp flucuaions in he ineres rae and ends o smooh hem: r r r * 1 ( 1 ) As a resul, he Taylor rule may be presened as follows: 1 1 e e e * * * * r r ( ) r y y er er (1) where ineres rae (r), is assumed o be a cenral bank policy insrumen (moneary aggregae could be reaed as an insrumen oo). e We assume a E ( a ) o be raional expecaions of he variable a (inflaion, oupu, and, k exchange rae) afer k periods, which are based on all available informaion Ω a he momen. We assume ha moneary policy affecs a afer k periods; accordingly, he Cenral bank makes k periods ahead forecas for variable a. The expeced variables values are compued using insrumenal variables in a Generalised Mehod of Momens framework. The insrumenal variables describe he se of available informaion a he momen. I is assumed ha he CBR will use all available daa o predic he fuure values of indicaors i is concerned abou. Cenre for Macroeconomic Research 12

13 Thus, he final regression equaion could be wrien as follows: E * * * * r ( L) r 1 ( 1) r E k E y k1 y E x k2 x z (, ) (, ) (, ) 0 (2) Empirical esimaion The uni roo es showed he saionariy on he variables, used in he model. The opimal se insrumens were seleced by he Hansen s J-saisics and LM es for underidenificaion. Also, we checked residuals for heeroscedasiciy in he equaions. We ake ino accoun ha given higher risks on global markes, moneary policy during he crisis period could be ougher. For his reason, we use dummy variable cris for he mos acue phase of he crisis (November 2008 Sepember 2009): cris=1, if November 2008 < < Sepember 2010 cris=0, oherwise. We also use ineracion regressors by aking he producs of all dummy variable cris and explanaory variables Y=y k -y*, PI=π k -π*, ER=er-er*. So, we esimae he following equaion: E r - ρr - cris ρ α + E βpi + γy + φer + βpi cris + γy cris + φer cris Ω z = 0 (3) * -1,k,k1,k2,k,k1,k2 The equaion for moneary base looks similar, because of grea imporance of seasonaliy for money aggregaes seasonal dummies are included oo. We consider models wih forecas periods (k) from one o six lags. The final resuls of our esimaes are shown in Table А1. In he Taylor equaion esimaed on he whole period (January 2003 o April 2010) parameer s before variables PI,k cris, Y,k1 cris, ER,k2 cris appeared o be insignifican in boh he ineres and moneary aggregae model. So, we excluded his variables from he final model. A he same ime, variable cris appeared o be significan boh for he ineres rae equaion (he parameer value is 1,323, significan a 1%) and he moneary base equaion (he parameer value is -2,929, a 5%). This proves sricer CBR policy during he crisis. Variables used In our esimaions we use monhly daa for he period from January 2003 o May As he dependen variable we use moneary base growh rae (source: CBR) and weighed repo rae (source: CBR, auhor s calculaions). Cenre for Macroeconomic Research 13

14 The real GDP was calculaed as nominal GDP shown by he Finance Minisry in monhly repors on federal budge compliance, discouned by CPI. The oupu arge was esimaed as he deviaion of real GDP logarihm from he long-erm rend, compued by he Hodrick-Presco filer. Cenre for Macroeconomic Research 14

15 Table А1 Insrumen Repo Moneary base growh rae Enire period: Jan Apr Pre-crisis period: Jan Apr Enire period: Jan Apr Pre-crisis period: Jan Apr Repo rae (-1) 0,671*** 0,642*** Moneary base growh (-1) 0,194** 0,02 0,244*** 0,01 Inflaion deviaion from arge value (+4) 0,365** 0,02 0,377* 0,06-2,878** 0,01-2,898** 0,02 Oupu deviaion from rend (+6) 1,383** 0,03 0,194 0,79 Oupu deviaion from rend (+4) -0,361 0,94-6,826 0,28 Real exchange rae growh deviaion from arge (+4) -0,167*** 0,01-0,250* 0,07 Real exchange rae growh deviaion from arge 0,600* 0,07 0,819** 0,02 January dummy variable -16,381*** -19,147*** December dummy variable 15,835*** 14,154*** Consan 2,050*** 2,231*** 1,894*** 1,726*** 0,01 Crisis 1,323*** -2,840** 0,04 J-saisics 0,78 0,339 0,638 0,352 Over idenificaion 0,065 0, ,021 Heeroskedasiciy 0,370 0,289 0,358 0,285 Cenre for Macroeconomic Research 15

16 Number of observaions Parameer significance level: *** 0,01; ** 0,05; * 0,10. Inflaion is calculaed as he monhly growh rae of Consumer Price Index (source: Rossa). The explanaory variable in he Taylor equaion, is he difference beween acual CPI growh rae and official inflaion arge declared by he CBR. We compue real exchange rae growh deviaion from arge as he difference beween he real effecive Rouble exchange rae growh (source: IMF) and officially declared CBR arge exchange rae growh. As insrumenal variables, we use lagged values of all variables, included in he equaion, seasonal dummies, as well as lagged and curren values of Bren price growh rae (source: EIA), M2 growh rae (source: Russian Cenral Bank), budge defici o GDP (source: Rossa) and capial inflow o GDP (source: Russian Cenral Bank). Cenre for Macroeconomic Research 16

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