Real effects of financial shocks in Russia

Over the last 10 years, Russia has faced many external and internal challenges. Using the Financial Stress Index for Russia (the ACRA FSI), which indicates the proximity of the Russian financial system to crisis and its reaction to different events, I show that shocks in the Russian financial system have adverse effects on real economic activity. The VAR model and Toda-Yamamoto augmented Granger causality tests are my research tools. I also estimate a threshold structural VAR model, revealing that the impact of a financial shock is bigger and longer lasting for distressed periods compared to normal periods in the Russian financial system. All my findings are in line with other research studies for both emerging and advanced economies.