The dynamic response of Russian exchange rate to precious metals and minerals prices

The macroeconomic performance of a resource-dependent economy is highly associated with the market values of its natural processions including precious metals and minerals, which eventually influence the local currency. To this end, by employing daily data from the 7^th of July 2008 to the 20^th of September 2023 this study measures the TVP-VAR with Stochastic Volatility from copper, nickel, lead, silver, and gold price to Russian exchange rate. The results confirm that copper is the most influential factor in explaining the dynamics of the exchange rate. Notably, the effect of gold price shocks remains more persistent over time as compared to the impact of silver, nickel, and lead prices. In general, we observe a higher sensitivity of exchange rate during 2014-2016 after the adoption of a fully floating exchange rate system, as well as during 2021-2023 which includes the COVID-19 pandemic and Russia-Ukraine conflict. The time-frequency analysis shows that the exchange rate turned into a net volatility contributor to the precious metal and minerals prices during the Russian-Ukrainian conflict in 2022-2023. Our findings reinforce important policy implications for investors in terms of portfolio diversification and policymakers in terms of designing exchange rate policies.