Sergiy Korablin

Assessing the effectiveness of the inflation targeting framework via the interest rate channel remains crucial in the current monetary policy debate. For Ukraine, the relevance of this discussion is enhanced by the adoption by the National Bank of a rigid inflation targeting policy since 2016, as well as by the challenges of price stability during war. The aim of the study is to identify how the discount rate affects the money market rates and how this affects inflation in Ukraine. Employing a VAR model on monthly data spanning 2016 – Q1 2022, the analysis demonstrates weak empirical evidence for the interest rate channel effectiveness. The impulse response indicates that the discount rate’s initial effect does not provide long-term inflation dynamics control. Variance decomposition analysis highlights the minimal influence of the NBU’s discount rate, primarily evident in the refinancing rate, followed by its impact on the rate of term deposits made by individuals, followed by the inflation, followed by the rate of new loans granted to residents, and finally the rate of government bond yields. Addressing the limitations of a rigid inflation targeting approach, the study recommends adopting a balanced approach, considering both price stability supported by exchange rate control measures and fostering economic growth. Additionally, a viable strategy for deepening the financial sector should be developed.

The paper builds on the existing literature on monetary policy frameworks, exploring their role in balancing price stability, economic growth, and social equity. The aim is to analyze the influence of macroeconomic, in particular monetary, factors on income inequality in Ukraine. Using annual data from 1999 to 2021, the study employs multiple regression analysis to assess the impact of inflation, unemployment, monetization, and the key policy rate on income inequality. The results indicate that inflation and unemployment significantly contribute to rising inequality, while increased monetization and higher key policy rates reduce it. The findings underscore the need for a monetary policy framework that not only targets inflation but also addresses employment, as unemployment has a delayed yet substantial effect on inequality. Although the negative correlation between monetization and inequality suggests that efforts to curb inflation could inadvertently increase inequality, it also indicates that enhancing financial inclusion through increased liquidity could produce positive redistributive effects. Given the limitations of inflation targeting, including its tendency to overlook employment objectives, delayed effects on inequality, and potential contradiction with financial inclusion goals, a flexible approach to inflation targeting may be a more effective strategy for reducing income inequality in Ukraine.