Dollarization and monetary policy in Russia

Abstract

This study assesses the causes of dollarization in Russia. Dollarization is defined here as the use of foreign currency both as a medium of exchange and store of value. According to different estimates, the current degree of dollarization of the Russian economy is 40-50 per cent.Inquiry into sources and mechanisms of dollarization in Russia reveals the main factors influencing its evolution - dynamics of inflation and the dollar exchange rate, as well as the uncertainty level of money and credit policy. The model of dollarization assessing the influence of key parameters of macroeconomic policy - inflation, exchange and interest rates - on dynamics of dollarization is created in the paper.Main conclusions and relationships of the model are tested on Russian data.Implications of obtained results for macroeconomic policy in Russia are discussed. Keywords:dollarization, monetary policy, models, Russia