Determination of the Real Exchange Rate of the Ruble and Assessment of Long-Run Policy of Real Exchange Rate Targeting

The equilibrium real exchange rate of the Russian ruble is estimated for the period from the early 1995 to the early 2008. According to the methodological approach proposed by Edwards (1988), the equilibrium real exchange rate is a function of a set of fundamental variables (a so-called "reduced form equation"). In order to estimate an equilibrium real exchange rate, a set of fundamentals was selected: terms of trade; productivity differential; fiscal policy variable. Estimation was performed in a co-integrated VAR framework using the Johansen co-integration test. The speed of adjustment of the actual real exchange rate to the equilibrium real exchange rate as well as the influence of monetary policy and private capital flows on the short-run dynamics of real exchange rate is explored.