Policy Papers


The Mechanism of Adjustment to Changes in Exchange Rate in Belarus and its Implications for Monetary Policy

This paper aims at visualizing adjustment mechanisms of the Belarusian economy to changes in exchange rate level and providing correspondent policy recommendations.

Knowing fair value of the Belarusian ruble is one of the most vital issues for economic agents in 2011. In the second half of 2010 aggressive expansionary policy led to significant macroeconomic fluctuations. Since then, the pressure at the currency market has been progressing. In March 2011, de-facto multiplicity of exchange rates was settled. Gradually the gap between official rate and the market ones was progressing, which pushed National bank to devalue the official rate by 56% in May. Nevertheless, the uncertainty was not eliminated from the market and the growth of the gap between market rate and a new official one continued.

As a rule, assessments of the equilibrium exchange rate are used to answer such a question. Such an approach of “equilibrium exchange rate” is mostly applicable to the economies that exploit fixed exchange rate regime (with this or that extent of fixity). Besides providing a quantitative benchmark, the methodology of equilibrium exchange rate estimation provides a background for understanding the adjustment processes to a new exchange rate in the economy. The latter seems much more important from a view of economic policy and understanding the patterns of the economy in the situation of a currency crises.