Christian Dreger (DIW Berlin): The impact of economic sanctions and oil prices on the Ruble and Hryvnia

The Ruble is of critical importance for the Russian economy. Since January 2014, the currency lost 50 percent of its value against the US Dollar. Similarly, the Ukranian Hryvnia lost about two thirds of its value. The fall of both currencies started with the military conflict between Russia and Ukraine, and may be insofar shaped by the sanctions imposed by Western countries against Russia. However, oil prices also declined since summer 2014. Since Russia is heavily dependent on natural resources, the oil price decline can be another factor behind the deterioration. By using high frequency data on nominal exchange rates and news concerning the conflict and the introduction of sanctions, we explore the driving forces of the exchange rate dynamics in both countries. The analysis is based on VAR models, where fundamental long run relationships are taken into account. The results indicate that the bulk of the depreciations is caused by the decline of oil prices. Short run dynamics are mainly driven by conflict news. While both exchange rates appear to be cointegrated, the Ruble is weakly exogenous to the long run relationship.

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