Does inflation or currency depreciation drive monetary policy in Russia?

This paper analyses the persistence of inflation in post-communist Russia, with interest rate, exchange rate, and money supply as key arguments. The paper then derives a monetary policy feedback rule, which has been used to show empirically in the context of Russia that the official interest rate has reacted more to exchange rate changes than reacting to inflation, thereby keeping inflation as a persistent problem. This implies a need to have a ‘flexible targeting rule’ for inflation so as to bring it under control, which would make interest rate as a key monetary policy instrument for price stability.