16 February 2016
Oleksandr Faryna (National Bank of Ukraine): Spillovers of External Shocks Transmission to Prices in Ukraine and Russia
Understanding the mechanism of external shocks transmission to domestic prices is crucial for ensuring stable economic development and low inflationary outlook of any open economy. Given the tight linkage between Ukraine and Russia, we attempt to answer the question “to what extent a large, oil exporting economy with flexible exchange rate tool transmits its external shocks to domestic prices of a relatively small, energy importing country with rigid exchange rate policy?” In our analysis, we employ a VAR framework in order to estimate the extent to which aggregate consumer prices in Ukraine and Russia respond to UAH/RUB bilateral exchange rate movements. In addition, we explore direct and indirect effect (through UAH/RUB exchange rate) of oil price changes on Ukrainian inflation.
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