An Economic Model of the Real Exchange Rate of the Ruble Project Leaders: Oleg Zamulin, Kirill Sosunov Student: Anton Cheremukhin. - презентация

1 An Economic Model of the Real Exchange Rate of the Ruble Project Leaders: Oleg Zamulin, Kirill Sosunov Student: Anton Cheremukhin

2 MOTIVATION Some structural RER models explain trends, none explain dynamics Some structural RER models explain trends, none explain dynamics RER models either do not predict or cannot be well interpreted RER models either do not predict or cannot be well interpreted Parameters are usually picked, not calibrated Parameters are usually picked, not calibrated

3 AIM AIM Build up a numerical model of the RER Build up a numerical model of the RER Explaining maximum dynamics Explaining maximum dynamics Based on simple economic intuition Based on simple economic intuition

4 ASSUMPTIONS 1. Intertemporal and Intratemporal Choice: Tradables vs Nontradables Today vs Tomorrow Today vs Tomorrow

5 ASSUMPTIONS 2. Money Demand (CIA) 3. Preferences: CRRA, CES 4. Nominal depreciation controlled by CB

6 ASSUMPTIONS 5. Inflation Inertia 6. Exchange Rate Pass-Through and Terms of Trade Shocks *all following Calvo, Vegh (1994)

7 NUMERICAL MODEL CB CB FOC (T) FOC (NT) Inflation inertia, pass-through and Balassa-Samuelson effect

8 CALIBRATION Short-run effect of inflation on RER 0,475 Share of traded goods in total consumption 0,350 Short-run effect of inflation on import 0,391 Effect of excess demand on inflation 0,241 Elasticity of intertemporal substitution -0,272Inflation inertia0,075 Elasticity of substitution between goods 0,659Exchange rate pass-through0,361 Terms of trade shocks0,027

9 RESULTS

10 RESULTS

11 RESULTS

12 RESULTS

13 CONCLUSION Model both makes economic sense and explains dynamics of RER, inflation, tradables and nontradables Model both makes economic sense and explains dynamics of RER, inflation, tradables and nontradables Most parameters are quite near to those picked in calibrated models Most parameters are quite near to those picked in calibrated models

14 POSSIBLE EXTENTIONS Unexpected Shifts Unexpected Shifts Inference Inference Optimal CB Intervention Policy Optimal CB Intervention Policy Add More Shocks Add More Shocks