The Relationship Between Oil Prices And Ruble Under Different Exchange Rate Regimes

As one of the world’s largest crude oil producers,Russia is highly affected by the prices on the international oil market.This paper attempts to analyze the relationship between oil prices and the ruble real effective exchange rate(REER)under the recent exchange rate regime changes.We break our sample into two periods considering October 2010,when the Bank of Russia abolished the fixed limits for the bi-currency basket,as a sample breaking point.In order to capture both long and short run dynamics of the relationship between oil prices and the ruble REER we apply a Vector Error Correction(VEC)model and further perform impulse response function and variance decomposition analyses.Our main finding indicates that in the long run the ruble exchange rate became less sensitive to the fluctuations of oil prices.It implies that since late 1990s the Russian economy relies less on the oil producing industry after the exchange rate regime reform.