The Role of Oil Price Fluctuation on Russian Macroeconomic Indicators

The Russian economy is mainly dependent on the exports of natural resources, particularly hydrocarbons. This dependence on the export of the so-called “black gold’ makes Russia vulnerable to the effects of the volatility in prices for crude oil on the market. In this thesis, I investigate the oil price fluctuations in the period from 2004 to 2021 and its impacts on the Russian macroeconomic indicators. The indicators that have been observed in my analysis are the Industrial Production Index (IPI), the Consumer Price Index (CPI), the exchange rate and the interest rate. In the theoretical part of my thesis I present an overview of the Russian economy, outline the oil price fluctuations in the recent years, provide a theoretical background and a summary of literature. In the analytical part of my thesis I have investigated the role of the oil prices on Russian macroeconomic indicators using the Vector Autoregressive (VAR) model. First, in order to indicate the stationarity of the data, I have used the unit root tests such as the ADF and the KPSS tests. Then I ran the Hausman test for endogeneity to justify the assumption that the oil prices are exogenously given to Russia. After that, to indicate and prove the causality relationship of the variables, I used the Granger test. And finally, to illustrate and assess the impact of the oil price to each of the macroeconomic indicators, I ran the IRF analysis. The contribution of my analysis is questioning whether and how much the economy of the Russian Federation has been responsive to the oil price shocks in the recent years and the fact that it covers the latest economic declines of 2014 and 2020.