Money, barter, and inflation in Russia

This paper analyzes relationships among money, barter, and inflation in Russia during the transition period. Following the development of a theoretical framework that introduces barter into a standard macroeconomic model for a small, open economy, we estimate the model using structural cointegration and vector error-correction methods. Our findings suggest that Russian barter resulted partly from output losses, and, to a lesser extent, from the reduction in real money balances. We also find that increases in barter are affected by inefficiencies in the banking sector. Our results imply that increased barter contributed to generating persistent inflation and output decline in Russia. Journal of Comparative Economics 32 (2) (2004) 297–314. Sogang University, CPO Box 1142, Seoul 100611, South Korea; Bank of Finland Institute for Economies in Transition, PO Box 160, FIN-00101 Helsinki, Finland.  2004 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.