The Russian Economy and the Oil Price: A Co-integrated VAR Approach

Using a co-integrated VAR model, this paper analyzes the dynamic effects of oil price and interest rate shocks on the Russian economy for the period 1995:Q1-2008:Q2. The co-integration analysis leads to the finding that a 1% increase in oil prices contributes to real GDP growth by 0.8%, suggesting an increase four times that reported by Rautava (2002), in the long run. Furthermore, the impulse response analysis suggests that the impacts of the shock on inflation and real GDP are positive over the next eight quarters (short run), whereas the tightening of monetary policy through interest rate channel is immediately associated with a decline in inflation as predicted by theory, but with an increase in real GDP over the preceding quarters.