Fiscal and Monetary Policy under External Volatility

Abstract

Specific requirements on macroeconomic policy, stemming from the impact of external volatility on trade balance and fiscal revenues are studied. Income gains or losses of the Russian economy due to variation in the commodity prices are found to range from -9 to +12% of GDP over the last decade. Contribution of the government and the Central Bank to neutralizing windfall revenues is evaluated, an approach to sharing their functions is suggested. It is demonstrated that monetary policy in the post-crisis period has been aimed rather at restraining ruble appreciation, than at smoothing the effect of external volatility. Expediency to formulate fiscal policy objectives and budget rules in terms of structural deficit (adjusted for windfall revenues) is argued.