Abstract
In 2000 and 2001 Russia faced a puzzle: high world oil prices, while ensuring GDP growth and strong fiscal balance, generated serious problems for domestic monetary and exchange rate policies. The Central Bank was forced to buy excess foreign exchange supply on the market, thereby paving the way for monetary expansion and inflation. On the other hand, the Central Bank’s rejection of rouble interventions in the forex market would have resulted in nominal appreciation of the rouble. In either case the outcome is fast real appreciation of the rouble, deterioration of the current account and slowdown of the economy. This article attempts to provide grounds for optimal monetary policy choice within the framework of a theoretical model of an open economy, which is similar to that of Russia in 2000 and 2001.
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