Pass-Through Effect and Monetary Policy in Russia: What has Changed Since the Crisis of 1998?
The rising flow of petrodollars and the real appreciation of Rouble create a trade-off between inflation and a loss of net exports in Russia recently. Therefore, the question to what extent Bank of Russia should intervene in the FOREX market is in the centre of all political and economic discussions nowadays. Theoretical models propose that the optimal degree of intervention depends on the pass-through effect (РТЕ) of exchange rate changes onto the domestic prices: the higher it is, the more dependent is the economy on external shocks and the more important are the interventions aimed at reducing the exchange rate volatility. In this paper we estimate the РТЕ on consumer prices of different goods in Russia and we trace changes in it since the crisis of 1998. We find that the РТЕ has decreased remarkably since the crisis period but it is still significant for some necessity goods. We also analyse the monetary policy of Bank of Russia during the crisis and nowadays. Our empirical findings show that the monetary policy has changed dramatically and nowadays it corresponds to the propositions of the theoretical models and the practice in the developed economies.