Russian regional finances analysis and regional debt sustainability

Russian regions recovered financial stability in 2017—2019 due to high ruble commodities prices, improving tax collection and conservative expenditures and borrowings policy. Panel data analysis shows that social-demographic structure of population is one of the key factors of regional budgets balance. Government measures will contribute to sustainability of regional finances and reducing interregional differences in debt sustainability, but provide negative impact of regional fiscal policy on output dynamics in the coming years. Strengthening of fiscal burden via federal taxes will diminish procyclicality of regional budgets revenues, but require a return of full profit tax rate on regional level for compensating lost incomes. For improving borrowing conditions Bank of Russia and regional governments must develop placement of bonds with floating rates, indexed and amortized nominal.

Exchange Rate Flexibility And Monetary Policy

<span>It has been argued that floating rates protect economies from monetary shocks originated abroad and provide great autonomy and independence. Those who have tried to use the money demand function to explain insulating properties have excluded exchange rate flexibility variable in their models. This paper estimates a money demand function that includes exchange rate flexibility as another determinant of the demand for money for the major industrialized countries.</span>

THE CASE FOR AN INTERMEDIATE EXCHANGE RATE REGIME

The argument that any exchange rate regimes other than firmly fixed and freely floating rates were infeasible — the so-called bipolarity thesis — acquired great popularity in the wake of the Asian crisis of a decade ago, but it has almost vanished today. One reason is surely the unkind empirical evidence, which shows that intermediate regimes — measured as those where both reserve and exchange rate changes lie in an intermediate range — are not in fact tending to disappear (Levy Yeyati and Sturzenegger, 2002). Another reason is the recognition that exchange rate policy should have other objectives besides avoiding crises, and that in the world we live in today it is reasonable to give these other objectives a significant priority. And perhaps a third factor is growing recognition that it is possible to design or operate intermediate regimes in ways that avoid exposing them to the dangers that were focused on by the disciples of bipolarity. This article starts by distinguishing the options that countries face in choosing an exchange rate regime. It examines the advantages and disadvantages of each of them, finally suggesting that for most countries the real choice lies between freely floating rates, floating rates disciplined by a reference rate system, and an ill-defined managed floating with the management undefined. Three issues may influence the choice between those alternatives: transparency; perceived consistency with that pillar of current macroeconomic thinking, inflation targeting; and the theory of what determines exchange rates. In the latter context, it is argued that the current conventional wisdom of the economics profession is wrong, and that a more convincing diagnosis of the process of exchange rate determination lends support to the proposal for a reference rate system.

The Mirage of Exchange Rate Regimes for Emerging Market Countries

This paper argues that much of the debate on choosing an exchange rate regime misses the boat. It begins by discussing the standard theory of choice between exchange rate regimes, and then explores the weaknesses in this theory, especially when it is applied to emerging market economies. It then discusses a range of institutional traits that might predispose a country to favor either fixed or floating rates, and then turns to the converse question of whether the choice of exchange rate regime may favor the development of certain desirable institutional traits. The conclusion from the analysis is that the choice of exchange rate regime is likely to be of second order importance to the development of good fiscal, financial, and monetary institutions in producing macroeconomic success in emerging market countries. This suggests that less attention should be focused on the general question whether a floating or a fixed exchange rate is preferable, and more on these deeper institutional arrangements. A focus on institutional reforms rather than on the exchange rate regime may encourage emerging market countries to be healthier and less prone to the crises that we have seen in recent years.