Russia: Currency policy and its bilateral trade

This paper attempts to identify the relationship between the bilateral trade balance of Russia and its biggest trading partners, Germany and the USA, and several independent explanatory variables. The empirical setup allows for non-stationarity and error correction between the variables through the Vector Error Correction Model (VECM) specification. This paper’s main conclusions are: (1) the Russian bilateral trade balance and exchange rate do not show a long run relationship; and (2) the results indicate no J-curve effect.