Abstract

Abstract

The goal of this paper is to empirically assess the impact of exchange rate shocks on prices and quantities of Russian exports and imports. The relevance of the work is dictated by the sanctions imposed on Russia in 2022, which can complicate international payments in the dominant currencies in international trade, and by subsequent economic policy measures aimed at reducing the role of the dollar and the euro in Russian foreign trade. Modern studies consider the currency of the contract as one of the most important factors influencing the magnitude of the exchange rate pass-through effect on prices and quantities of exports and imports. The main assumption of such models – short-term price rigidity in terms of contract currency – matches the behavior of real data. These models also predict the dependence of the pass-through effect on the firm's share of the product-country market. In this paper, based on econometric analysis of detailed data from customs statistics of the Russian Federation, it is shown that the key to the dynamics of exports and imports is not bilateral exporter-importer rates, but exporter and importer rates to the dominant currencies in world trade (US dollar and euro), and prices are rigid in the contract currency. Because of the asymmetry in the response between importer currency shocks and exporter currency shocks to the contract currency, there is a statistically and economically significant effect of a uniform appreciation of the dominant currency. This means that Russia's foreign trade prices and quantities respond to the dynamics of the contract currency even if neither the exporter nor the importer is a country issuing the contract currency. This response persists in the long run, and therefore cannot be explained solely by short-term price rigidity. The pass-through effect depends on the value of exports and imports, which is consistent with the predictions of the theory. The main conclusion of the paper is that diversification of the currency structure of foreign trade contract payments will contribute to the sustainability of Russian foreign trade, but the question of the costs of such a transition remains beyond the scope of this study.

Abstract

The aim of the work is an empirical analysis of the ruble exchange rate pass-through into prices under reorientation of imports to suppliers from neutral countries due to the withdrawal of some suppliers from the Russian market. The motivation is related to the structural transformation of Russian foreign trade and the continued volatility of the ruble exchange rate. I collected a database of Russian imports based on statistics of the main trading partners. The data shows three periods since February 2022: a drop of import flows from all countries in February-April 2022; a period of reorientation (increase) of imports from neutral countries in May – December; and following general stabilization of trade. The result of econometric analysis at commodity-group level consistent with the hypothesis of reorientation of imports: the average growth rates of import prices from 'unfriendly' countries during the considered period significantly exceed the rate of price growth in the pre-crisis period. The difference is from 1.9 to 4.9 percentage points in a year basis. At the same time, there is no evidence in favor of the hypothesis of an increase in the growth rate of import prices from neutral countries during the crisis period. The main conclusion is that, by the end of 2022, the ruble exchange rate pass-through into import prices returned to the characteristic values of previous periods. This suggests that the current weakening of the ruble will affect import prices and lead to a reduction of imports volumes. The period of turbulence and reorientation of Russian imports has ended. Its result was a multiple drop in imports from 'unfriendly' countries and a higher increase in the prices of imports from them.

Abstract

The presented paper empirically accesses the determinants of invoice currency choice by Russian exporters. The relevance of the work is dictated by the sanctions imposed against Russia, which, among other things, make international settlements in the dominant currencies difficult and facilitate the transition of Russian exporters and importers to settlements in other currencies. The existing economic literature considers the invoice currency as one of the most important factors of the magnitude of the exchange rate passthrough into prices and quantities. The basic assumption of such models is short-term price rigidity in terms of invoice currency, which is in line with the data. The dominant view is that the choice of contract currency made by exporters based on the desired medium-term exchange rate pass-through, which in turn depends on company’s share in the market and the intensity of imported components using. In this paper using the detailed data of customs statistics of the Russian Federation it is show that key determinants of the Russian exporter’s contract currency choice are the competitor’s choice of the contract currency, the firm’s market share, the invoice currency import structure and firm productivity, as well as the degree of differentiation of the exported product. The main conclusion is that the currency structure of export payments will change due to changes in the currency structure of imports, and in many product markets the short-term stability of the share of Russian exporters will suffer, including due to difficulties in using the US dollar as the currency for nominating exports.