The Relation of Financial and Industrial Stresses to Monetary Policy Parameters in the Russian Economy

Abstract

The paper examines the relationship between financial and industrial stresses in the Russian economy in 2006–2019, mediated by the monetary policy of the state. Stress indices are constructed on the basi of a number of financial market and industrial sector indicators of the Russian economy. These variables are aggregated using the principal component analysis. Stress indices are calculated as the moving difference between the standard deviation and the mean value of the first principal component. The graphical and correlation analysis confirms that industrial stress in the Russian economy grows during financial crises, accompanied by an increase in credit interest rates (including the key rate) and the scale of refinancing of credit institutions by the Bank of Russia. Based on the construction of ARDL models, we obtained convincing evidence of the positive impact of both a short-term increase in the key interest rate and a longer increase in the scale of refinancing of credit institutions by the Bank of Russia on the reduction of financial and industrial stresses in the Russian economy, which, however, appears in different time intervals. We concluded that the combined management of industrial and financial stresses, taking into account their interaction and sensitivity to different instruments, requires the search for the optimal combination of monetary regulation methods. The results obtained may be useful in conducting a prudent monetary policy in periods of financial instability.