Template-Type: ReDIF-Article 1.0
Author-Name: Ilya V. Prilepskiy
Author-Email: iprilepskiy@eeg.ru
Author-Workplace-Name: Economic Expert Group, Moscow 107031, Russia
Author-Workplace-Name: Financial Research Institute, Moscow 127006, Russia
Title: Impact of Fiscal Rules on Exchange Rate Volatility
Abstract: Decrease of dependency level between oil prices and ruble exchange rate is among the key goals of a new version of Russia’s fiscal rule. This study analyzes motivation to adopt this goal by reviewing the estimates for impact of exchange rate volatility on economic growth. It proceeds to assessment of commodity-exporting countries experience and considers the effects of fiscal rule implementation on real and nominal exchange rate volatility. Moreover, the author conducts the long-term scenario analysis of ruble exchange rate volatility for different versions of the fiscal rule. The main results are as follows. First, reduction of the exchange rate volatility leads to a modest increase in investment and export growth. Second, in general, adoption of fiscal rules does not result in reduction of the exchange rate fluctuations, though in the case of Russia since 2017 ruble exchange rate has been significantly de-linked from oil prices. Finally, according to scenario analysis compared with other versions of the fiscal rule (2013 Russian version; Norwegian version; targeting non-oil deficit; tying expenditure growth
to GDP growth; no fiscal rule) the current Russian version yields a substantial decrease in exchange rate volatility, though its performance could be further improved by introduction of a mechanism for the base oil price modification in case of a long-term fall in actual oil prices below 40$/barrel in constant 2017 dollars (which is the base price in the current version of the rule).
Classification-JEL: E62, E65, H68
Keywords: fiscal policy, fiscal rule, exchange rate, volatility, oil prices, welfare fund
Journal: Finansovyj žhurnal — Financial Journal
Pages: 9-20
Issue: 6
Year: 2018
Month: December
DOI: 10.31107/2075-1990-2018-6-9-20
File-URL: http://www.finjournal-nifi.ru/images/FILES/Journal/Archive/2018/6/statii/fm_2018_6_01.pdf
File-Format: Application/pdf 
Handle: RePEc:fru:finjrn:180601:p:9-20