Optimal Economic Policy and Oil Prices Shocks in Russia

Abstract

The goal of the paper is to explain and analyze whether the Central Bank of Russia should include commodity prices into the lists of variables they try to respond. We augmented New Keynesian DSGE small open economy model of Dib (2008) with the oil stabilization fund and new Taylor-type monetary policy rule and estimated the model using Bayesian econometrics. The results show that Central Bank's mild response to the oil price changes may be desired in terms of minimizing fluctuations of inflation and output only in the case when stabilization fund would be absent, while this response is redundant when "excess" oil revenues can be saved in the fund. © 2013 Juraj Dobrila University of Pula, Department of Economics and Tourism "Dr. Mijo Mirkovic".