Three crises in the Russian economy and one chain of events

Abstract

In the post-Soviet period, the Russian economy has faced three market-type crises (1998, 2008–2009, 2014–2016). Even though impulses moving the economy out of equilibrium were external, mechanisms for the diffusion of these impulses from the financial system into real sector were specific to Russia. This paper explores consistent relations of events that brought about these economic crashes. All three cyclical crises in the Russian economy followed the same chain of events. Recession began with a decline in oil prices, which then provoked a deep and sharp ruble devaluation, the scale of which was determined by speculation by commercial banks. To stabilize the ruble exchange rate, the Central Bank increased interest rates and squeezed the liquidity of the banking sector. This raised the cost of credits, such that companies of real sector had to borrow less, transforming the financial shock transformed into an economic crisis. This paper reveals the scheme of links and chains of events that transformed external shocks into full-fledged recessions, and all processes in Russia’s economy during these three cyclical crises of post-Soviet development followed the same scheme.