An econometric model of the Russian Federation

This article presents a new model of the Russian Federation and applies it to the recent crisis. It examines a range of policy options designed to improve the current economic situation. The objective is to show that the decline in output can mainly be explained by a fall in the potential output that has rendered the economy supply-side constrained. More precisely the Russian crisis may be explained by capital stock obsolescence that has rendered enterprises unable to face international competition. Hence, the optimal policy should not focus on fiscal consolidation alone, but, rather, to achieve this while undertaking supply side reforms aimed at rebuilding the capital stock. (C) 2000 Elsevier Science B.V. All rights reserved.