VOLUME IV
8 Conclusion This thesis estimates the economic impact of sanctions on Russia’s economy using VAR techniques and forecasting models. I generate indices representing the cumulative strength of sanctions levied against Russia by Western nations, sanctions levied by Russia, and the media’s focus on Russian-specific sanctions. Incorporating these indices into models for the Russian ruble and macroeconomy grants insight into the impact of particular sanctions on Russia’s economy. I present forecasting scenarios for the ruble and Russian GDP through Q3 2019. These scenarios present the models with alternative oil prices and levels of sanctions. The forecast results demonstrate the positive impact of oil prices on both Russia’s ruble and its GDP; moreover, they show that sanctions weaken the Russian ruble: Sanctions depreciate the ruble by 8% relative to the scenarios in which sanctions against Russia are removed. Forecasting results indicate that whether Western nations and Russia maintain or remove their sanctions affects Russia’s future GDP growth. If all nations remove their sanctions against Russia, Russian GDP will grow by 4.76% when oil prices hold flat and 5.58% when oil prices increase. If sanctions remain in place, the Russian economy will remain stagnant given an increase in oil prices and dip into a weak recession given flat oil prices. These results confirm both economic intuition and recent findings in the literature. Sanctions should be costly to Russia and to the nations imposing them. Although my forecasting results for Russia’s GDP land between Rautava (2013) and Tuzova and Qayum (2015), I expected an increase in the oil price to induce greater Russian GDP growth. The use of real instead of nominal oil prices may partially weaken the impact of an energy boom on the system over the next few years. Like in Tuzova and Qayum (2015), sanctions may be slightly over-weighted in the analysis. They use a dummy variable that takes a value of zero until sanctions were implemented and a value of one for the remainder of the estimation period. Given the detailed structure of my sanctions indices and their ability to represent the accumulated strength of sanctions over time, they should present a more accurate estimation of the impact of Western sanctions. Future analysis might reconsider the weights assigned to each nation in the sanctions index. Given the trade-weighted basis of the index, sanctions by the EU carry significantly more weight than the United States. Since the EU accounts for ~50% of Russian trade and the US accounts for only ~5%, EU sanctions carry ten times the strength of US sanctions in the index. Sanctions strength only slightly decreases when the US removes sanctions. Given the role of the US as a leader in financial markets and international geopolitics, the strictly trade-weighted index does not capture potential signaling effects of US sanctions. Moreover, the weights assigned to particular sanctions might also be adjusted. Sanctions against individuals or industries might be more or less impactful than they are assumed to be in this
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