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  5. A Minimalist Model for the Ruble During the Russian Invasion of Ukraine

A Minimalist Model for the Ruble During the Russian Invasion of Ukraine

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 becomes 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 non-sanctioning 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.

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