Sterilized Interventions in the Form of Foreign Currency Repos: VECM Analysis Using Russian Data

Abstract

The study examines the foreign currency repo program launched by the Bank of Russia after financial sanctions were imposed on Russia in 2014. Russian 2014-2017 daily statistics were used to estimate three vector error correction models which revealed a statistically significant temporary effect of sterilized interventions in the form of foreign currency repos on the ruble exchange rate to the dollar. An impulse response of the exchange rate to the expansion in foreign-currency-denominated borrowings has the correct sign, reaches its maximum on the 9th business day and is found to be statistically significant within 7-14 business days after the auction date. The response of the exchange rate was found to be asymmetric: the winding down of the foreign currency repo program had no statistically significant effect on the exchange rate.