American Economic Review: Insights
ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)
A Minimalist Model for the Ruble during the Russian Invasion of Ukraine
American Economic Review: Insights
(pp. 347–56)
Abstract
This note isolates an overlooked economic force for the ruble to appreciate in response to international sanctions limiting exports to Russia. The intuition is that when Russians are unable to buy the mix of foreign goods they wish, foreign goods become less attractive, increasing demand for domestic goods. To reestablish an equilibrium, a real appreciation is needed to raise the relative price of domestic goods and incentivize imports from nonsanctioning countries. We also review well-known forces for depreciation. Our analysis emphasizes that the exchange rate is an inadequate signal of the welfare impact and of the effectiveness of sanctions.Citation
Lorenzoni, Guido, and Iván Werning. 2023. "A Minimalist Model for the Ruble during the Russian Invasion of Ukraine." American Economic Review: Insights 5 (3): 347–56. DOI: 10.1257/aeri.20220303Additional Materials
JEL Classification
- D74 Conflict; Conflict Resolution; Alliances; Revolutions
- E31 Price Level; Inflation; Deflation
- F14 Empirical Studies of Trade
- F31 Foreign Exchange
- F51 International Conflicts; Negotiations; Sanctions
- P24 Socialist Systems and Transitional Economies: National Income, Product, and Expenditure; Money; Inflation
- P33 Socialist Institutions and Their Transitions: International Trade, Finance, Investment, Relations, and Aid