Modeling the Effect of Exchange Rate Pass-Through to Inflation

This paper investigates the relationship between exchange rate movements and inflation in Russia. It is noted that there is a lack of research on the influence of various factors on the exchange rate pass-through effect in perspective. The main goal of the study is to forecast short-term inflation in Russia taking into account the influence of exchange rate pass-through. Empirical data from Russian sources indicate an increasing significance of the pass-through effect in fluctuations in domestic prices. Sanctions have also played a significant role in increasing prices of imported and domestically produced goods. The results will show that the exchange rate rollover effect significantly affects short-term inflation in Russia. This study aims to forecast real inflation levels using a Vector Autoregression (VAR) model to assess the impact of selected variables on inflation.