Analysis of the Relationship Between the Exchange Rate Policy of the Russian Central Bank and the Interest Rates: Uncovered and Covered Parity

An important condition for the transition to the free float and inflation targeting regime is the ability of the Russian Central Bank to pursue an active independent policy of interest rate adjustment. The purpose of this investigation is to analyze the effect produced by the exchange rate policy of the Russian Central Bank on the money market and to assess the sensitivity of domestic interest rates to foreign rates through the covered and uncovered interest rate parities. Assessment of variations in the coefficients of the tested relationships at different stages of the Russian Central Bank's exchange rate policy will allow judging the success of the institutional development which prepares a gradual transition to free float and inflation targeting.