Working Paper: NBER ID: w29929
Authors: Guido Lorenzoni; Ivn Werning
Abstract: This note isolates an overlooked economic force for the Ruble to appreciate in response to international sanctions limiting exports to Russia. The economic intuition is that when Russians are unable to buy the mix of foreign goods they wish, then foreign goods becomes less attractive, increasing the demand for domestic goods; to reestablish an equilibrium a real appreciation is needed to raise the relative price of domestic goods and incentivizing the accumulation of foreign assets and the import from non-sanctioning countries. We also review well-known forces for a depreciation (e.g. Russian export reduction). Our analysis emphasizes that the exchange rate is an inadequate signal of welfare impacts and the effectiveness of sanctions.
Keywords: Ruble; Sanctions; Ukraine; Economic Model; Exchange Rate
JEL Codes: E0; F3; F31; F4; F51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| International sanctions imposed on Russia (F51) | Appreciation of the ruble (F31) |
| Shift in consumer behavior (D16) | Appreciation of the ruble (F31) |
| Inability to purchase desired foreign goods (F31) | Increased demand for domestic goods (R22) |
| Increased demand for domestic goods (R22) | Necessity for real appreciation of the ruble (F31) |
| Real appreciation of the ruble (F31) | Elevation of the relative price of domestic goods (P22) |
| Elevation of the relative price of domestic goods (P22) | Incentivization of accumulation of foreign assets and imports from nonsanctioning countries (F32) |