Macroeconomic shock spillovers from Russia to Kazakhstan

This study examines the economic relationship between Russia and Kazakhstan, conducting empirical analysis to investigate the transmission mechanisms of economic shocks. Drawing on significant historical events such as the annexation of Crimea in 2014 and the invasion of Ukraine in 2022, alongside econometric techniques such as ordinary least squares and vector autoregression, the research explores the cross-border effects on exchange rates and inflation rates between the two nations. The empirical results strongly indicate that changes in the ruble exchange rate affect that of tenge, and inflationary trends in Russia impact those in Kazakhstan. By identifying these spillovers from Russia to Kazakhstan, the study highlights Kazakhstan’s dependencies inherent in its economic integration in the form of a customs union, the Eurasian Economic Union, which includes the ‘free currency convertibility’ agreement signed with Russia. Lastly, this paper raises pertinent questions about how Kazakhstan can mitigate negative spillovers from its neighbour.