The equilibrium model of demand and supply at the Ukrainian Interbank Foreign Exchange Market: disclosure of problematic aspects

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This article is devoted to building of the equilibrium model between demand and supply on foreign currency at the Ukrainian Interbank Foreign Exchange Market (non-cash share). The authors discussed that appeared trade-offs are a product of established current foreign arrangement, administrative measures provided by the National Bank of Ukraine and range of fundamental variables, which are traditionally significant for Ukrainian economy. By means of FAVAR modeling model of demand and supply equlibrium on non-cash foreign currency was built on empirical data of Ukrainian Interbank Foreign Exchange Market, splitted into the periods, proposed by the authors. Next, it was discussed disconnection properties in the model and shown log-linearized specification of the one. The efficiency of fulfillment hypothesis on decointegrating of the fundamental variables' time series has been provided in form of critical statistics values. Also, instrument of GAP analysis of deviation from equilibrium state was proposed and the further analysis of a regulation style of monetary authority was provided. In conclusion, it was summarized that increased share of the cash out of the banks has significantly jeopardized the price stability in Ukraine and the NBU interventions would become more effective if the flexible foreign exchange rate will be accompanied with flexible regime of inflation targeting.

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    • Figure 1. Influence of NBU intervention on demand of non-cash foreign currency in Ukraine, in ths dollars
    • Figure 2. Influence of NBU intervention on supply of non-cash foreign currency in Ukraine, in ths dollars
    • Figure 3. The difference between gap of demand and supply function at the UIFEM
    • Table 1. The correlation matrix of the Ukrainian interbank market, external sector selected indicators within 2007–2016 years
    • Table 2. Exchange rate arrangements and monetary policy framework in Ukraine during 2007–2016 years by the IMF rating
    • Table 3. Properties of demand-supply model on non-cash foreign exchange currency in Ukraine
    • Table 4. The models of the foreign currency exchange demand at the UIFEM (non-cash segment). The foreign currency exchange demand is the dependent variable
    • Table 5. The models of the foreign currency exchange supply at the UIFEM (non-cash segment). The foreign currency exchange supply is the dependent variable