On the effectiveness of the interest rate channel within inflation targeting in Ukraine: a VAR approach
-
Author(s)Yevhen BublykLink to ORCID Index: https://orcid.org/0000-0002-6080-9341
,
Sergiy KorablinLink to ORCID Index: https://orcid.org/0000-0002-2979-3206
,
Yuliia ShapovalLink to ORCID Index: https://orcid.org/0000-0001-9965-5522
-
DOIhttp://dx.doi.org/10.21511/bbs.18(4).2023.24
-
Article InfoVolume 18 2023, Issue #4, pp. 293-306
- Cited by
- 211 Views
-
64 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
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.
- Keywords
-
JEL Classification (Paper profile tab)C32, E44, E52
-
References41
-
Tables7
-
Figures3
-
- Figure. 1. CPI and the NBU’s discount rate, 2015–2023
- Figure 2. Impulse responses of money market rates and inflation to the change in the discount rate
- Figure A1. Stability test
-
- Table A1. ADF unit root test
- Table A2. Lag order selection criteria
- Table A3. Lag exclusion Wald test
- Table A4. Residual serial correlation LM tests
- Table A5. Granger causality test
- Table A6. Vector autoregression estimates
- Table A7. Variance decomposition analysis
-
- Aftalion, F., & White, L. J. (1977). A study of a monetary system with a pegged discount rate under different market structures. Journal of Banking & Finance, 1(4), 349-371.
- Agénor, P., & da Silva, L. (2019). Integrated inflation targeting-Another perspective from the developing world. Bank for International Settlement.
- Ahmed, R., Borio, C. E., Disyatat, P., & Hofmann, B. (2021). Losing traction? The real effects of monetary policy when interest rates are low (BIS Working Papers No. 983).
- Anufriieva, K., Brus, S., Bublyk, Y., & Shapoval, Y. (2021). Ukrainian Financial System Development: The Path to EU. Economic Studies, 30(3), 38-55.
- Arsić, M., Mladenović, Z., & Nojković, A. (2022). Macroeconomic performance of inflation targeting in European and Asian emerging economies. Journal of Policy Modeling, 44(3), 675-700.
- Becker, B., & Ivashina, V. (2018). Financial repression in the European sovereign debt crisis. Review of Finance, 22(1), 83-115.
- Beckworth, D. (2014). Inflation targeting: A monetary policy regime whose time has come and gone. New York: Mimeo, Mercatus Center at George Mason University.
- Bhalla, S., Bhasin, K., & Loungani, M. P. (2023). Macro effects of formal adoption of inflation targeting (IMF Working Papers No. 2023/007).
- Bonomo, V., & Sorensen, R. L. (1970). The Discount Rate: A Phantom Policy Tool? – Comment. Economic Inquiry, 8(3), 262-264.
- Borio, C. E., & Hofmann, B. (2017). Is monetary policy less effective when interest rates are persistently low? (BIS Working Paper No. 628).
- Cevik, S., & Teksoz, K. (2012). Lost in transmission? The effectiveness of monetary policy transmission channels in the GCC countries (IMF Working Papers No. WP/12/191).
- Coenen, G., Montes-Galdon, C., & Schmidt, S. (2021). Macroeconomic stabilisation and monetary policy effectiveness in a low-interest-rate environment. Journal of Economic Dynamics and Control, 132, 104205.
- Danylyshyn, B. (2017). “Bankopad” koshtuvav ekonomitsi 38% VVP – holova Rady NBU [“Bankopad” cost the economy 38% of GDP – Chairman of the NBU Council]. BBC News Ukraine. (In Ukrainian).
- Goodfriend, M. (2007). How the world achieved consensus on monetary policy. Journal of Economic Perspectives, 21(4), 47-68.
- Guerini, M., Lamperti, F., & Mazzocchetti, A. (2018). Unconventional monetary policy: between the past and future of monetary economics. European Journal of Economics and Economic Policies: Intervention, 15(2), 122-131.
- Hlazunov, A. (2023). Corporate credit growth determinants in Ukraine: bank lending survey data application (IHEID Working Papers 16-2023).
- Hussain, M., & Bashir, U. (2019). Impact of monetary policy on bank lending: does market structure matter? International Economic Journal, 33(4), 620-648.
- Iddrisu, A. A., & Alagidede, I. P. (2020). Revisiting interest rate and lending channels of monetary policy transmission in the light of theoretical prescriptions. Central Bank Review, 20(4), 183-192.
- Jäger, J., & Grigoriadis, T. (2017). The effectiveness of the ECB’s unconventional monetary policy: Comparative evidence from crisis and non-crisis Euro-area countries. Journal of International Money and Finance, 78, 21-43.
- Jahan, S. (2012). Inflation targeting: Holding the line. Finance & Development, 4, 72-73.
- Kandil, M (2015). The adverse effects of real exchange rate variability in Latin America and the Caribbean, Journal of Applied Economics, 18(1), 99-120.
- Khatat, M. E. H. (2016). Monetary policy in the presence of Islamic banking (IMF Working Paper No. WP/16/72).
- Korablin, S. (2021). Monetary security: some definitions and assessments. Finansy Ukrainy – Finance of Ukraine, 1, 7-45.
- McNees, S. K. (1993). The discount rate: The other tool of monetary policy. New England Economic Review, 3-22.
- Mishra, P., Montiel, P. J., & Spilimbergo, A. (2012). Monetary transmission in low-income countries: effectiveness and policy implications. IMF Economic Review, 60(2), 270-302.
- Mojon, B. (2000). Financial structure and the interest rate channel of ECB monetary policy (ECB Working Paper No. 40).
- National Bank of Ukraine (NBU). (2023). NBU monetary operations with banks: interest rates.
- Ouyang, A. Y., & Rajan, R. S. (2019). The impact of financial development on the effectiveness of inflation targeting in developing economies. Japan and the World Economy, 50, 25-35.
- Pérez-Moreno, S., Martín-Fuentes, N., & Albert, J. F. (2022). Rethinking monetary policy in the framework of inclusive and sustainable growth. In P. Arestis and M. Sawyer (Eds.), Economic Policies for Sustainability and Resilience (pp. 319-364). International Papers in Political Economy. Cham: Palgrave Macmillan.
- Pinardon-Touati, N. (2021). The Crowding Out Effect of Local Government Debt: Micro-and Macro-Estimates (Job Market Paper).
- Primus, K. (2016). The effectiveness of monetary policy in small open economies: an empirical investigation (IMF Working Papers No. WP/16/189).
- Rasche, R., & Williams, M. M. (2007). The effectiveness of monetary policy (FRB of St. Louis Working Paper No. 89(5)).
- Scarlata, J. (2002). Inflation targeting. In C.-H. Wong, M. Khan, and S. Nsouli (Eds.), Macroeconomic management: Programs and policies (pp. 168-200).
- Shapoval, Yu., Kerimov, P., Shpanel-Yukhta, O., Korablin, S., Bublyk, Ye., & Brus, S. (2022). Financial depth-economic growth nexus in Ukraine. Kharkiv: РС Tесhnology Cеntеr.
- Shumska, S. (2019). Empirical estimation of the impact of monetary policy of world leading countries on the Ukraine economy. Scientific Bulletin of KSU. Series “Economic Sciences”, 33, 251-258.
- Shvets, S. (2023). Dominance score in the fiscal-monetary interaction. National Accounting Review, 5(2), 186-207.
- Sims, C. A. (1980). Macroeconomics and Reality. Econometrica, 48(1), 1-48.
- State Statistics Service of Ukraine. (2023). Indeksy spozhyvchykh tsin na tovary ta posluhy [Consumer price indices for goods and services]. (In Ukrainian).
- Taylor, J. B. (2019). Inflation targeting in high inflation emerging economies: Lessons about rules and instruments. Journal of Applied Economics, 22(1), 103-116.
- Weber, A. (2015). Why we need to rethink inflation targeting. WEF.
- Zholud, O., Lepushynskyi, V., Nikolaychuk, S. (2019). The Effectiveness of the Monetary Transmission Mechanism in Ukraine since the Transition to Inflation Targeting. Visnyk of the National Bank of Ukraine, 247, 19-37.
-
Impact on poverty and income inequality in Malaysia’s economic growth
Rabiul Islam ,
Ahmad Bashawir Abdul Ghani ,
Irwanshah Zainal Abidin ,
Jeya Malar Rayaiappan
doi: http://dx.doi.org/10.21511/ppm.15(1).2017.05
Problems and Perspectives in Management Volume 15, 2017 Issue #1 pp. 55-62 Views: 11846 Downloads: 5652 TO CITE АНОТАЦІЯPoverty and income inequality are extreme issues that still exist in Malaysia. Any rise in poverty and income inequality definitely affect economic growth. There are many great efforts taken by the government of Malaysia to eradicate poverty and to reduce the gap of income inequality which occurs since 1970’s. The incidence of poverty and income inequality is higher in rural areas compared to urban areas. This paper is mainly to study the level of poverty and income inequality in Malaysia together with government intervention to develop Malaysia’s economic growth. The research is focused among the working people at Ipoh, Perak. In this paper, questionnaire forms are being distributed to get information regarding the issue of poverty and income inequality. It also looks into the strategies taken by the government of Malaysia to eradicate poverty and income inequality. Few recommendations are given in terms of education policy, financial aid and assistance from government and non-government organization (NGO) to upgrade the standard and quality of living among the poor and lower-income group of people.
-
Impact of inflation on economic growth: evidence from Nigeria
Anthony Olugbenga Adaramola ,
Oluwabunmi Dada
doi: http://dx.doi.org/10.21511/imfi.17(2).2020.01
Investment Management and Financial Innovations Volume 17, 2020 Issue #2 pp. 1-13 Views: 8998 Downloads: 5249 TO CITE АНОТАЦІЯIn an attempt to examine the influence of inflation on the growth prospects of the Nigerian economy, the study employs the autoregressive distributed lag on the selected variables, i.e. real gross domestic product (GDP), inflation rate, interest rate, exchange rate, degree of economy`s openness, money supply, and government consumption expenditures for the period 1980–2018. The study findings indicate that inflation and real exchange rate exert a significant negative impact on economic growth, while interest rate and money supply indicate a positive and significant impact on economic growth. Other variables in the model depict no influence on the economic growth of Nigeria. The causality result shows the unidirectional relationships between interest rate, exchange rate, government consumption expenditures and gross domestic product. However, inflation and the degree of openness show no causal relationship with gross domestic product. As a result, the study recommends that a more pragmatic effort is needed by the monetary authorities to target the inflation vigorously to prevent its adverse effect by ensuring a tolerable rate that would stimulate the economic growth of Nigeria.
-
Formalization of the impact of imbalances in the movement of financial resources on economic growth of countries in Central and Eastern Europe
Serhiy Kozmenko ,
Maxim Korneyev
doi: http://dx.doi.org/10.21511/afc.01(1).2017.06
Accounting and Financial Control Volume 1, 2017 Issue #1 pp. 48-58 Views: 7839 Downloads: 1371 TO CITEThe article deals with the impact of financialization on economic growth in countries of Central and Eastern Europe. It determinesthe impact of imbalances in the movement of financial resources caused by financialization on economic growth of these countries. It proves that the implementation of measures aimed at increasing the openness of the economy and maintaining solvent demand have a positive impact on economic growth of the surveyed countries in the long run. It also proves the importance of developing a set of measures of strategic nature regulating imbalances in the movement of financial resources caused by financialization.
