Are key rate forecasts effective and how does short sale ban affect stock market: New issue of Russian Journal of Money and Finance

The second issue of the scholarly quarterly Russian Journal of Money and Finance of 2023 has been published.

Monetary policy has partly become the management of financial market participants’ expectations. Central banks form market expectations by revealing their policy rate forecasts. The Bank of Russia published its first forecast of the key rate path in April 2021. Mansur Abdurakhmanov (Bank of Russia and RANEPA) evaluates the effects of the Bank of Russia’s forecasts using government bond yields as the main indicator of market expectations. He finds out that key rate forecasts published by the Bank of Russia have strong effects on market expectations, at least in the short and medium term.

The stabilisation of inflation depends on the response of prices to changes in the foreign exchange rate, or the effect of the exchange rate pass-through to prices. Empirical research shows that the short-term (e.g. after three months) exchange rate pass-through to prices is quite small. However, will this conclusion remain the same if one analyses a longer period, e.g. several years? Aleksandr Eliseev and his colleagues from the Bank of Russia Volga-Vyatka Main Branch try to answer this question using a model based on economic data of all Russian regions and conclude that the exchange rate pass-through turns out to be almost complete over more than five years, namely within the range of 98.1–99.0%.

Stock market crashes might have detrimental consequences, and one of the most straightforward approaches to this sometimes used by regulators is the simple prohibition of the short selling. Based on evidence from the European Union, Aleksey Kipriyanov (HSE University) estimates the effect of this approach, analysing the experience of imposing the short sale bans at the outbreak of COVID-19. The author finds out that the short sale bans are positive for stock returns and negative for market volume and liquidity.

The new issue of the Russian Journal of Money and Finance (No. 2, 2023) is available on the website.