Impact of politically generated shocks on monetary performance: a cross-country comparison

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During the post-Great Recession period, macroeconomic stability had more often been threatened by socioeconomic shocks due to the rising of public discontent with the high unemployment rate and poverty, the activation of radical parties and movements, and the aggravation of the geopolitical confrontation in the world. Depending on the type and depth of such shocks, they become politically generated shocks and, in particular, affect the monetary sphere. The article investigates three types of politically generated shocks and their impact on the monetary sphere. It has been found out that the shocks generated by political populism are characterized by fiscal domination in the economy, the use of monetary measures in the budget deficit financing. Shocks arising after the use of international sanctions against certain countries have an external origin and primarily cause the increase in national exchange markets volatility. On the whole, macroeconomic and, especially, monetary instability is the result of the great shocks for the economy, the depth and duration of which are determined by the nature of the crisis, particularly, when country participates in the military conflict. The aforementioned types of politically generated shocks are analyzed based on the experience of countries such as Argentina, Turkey, and Ukraine, which at one time introduced the regime of inflation targeting in monetary policy, but were forced to modify it influenced by political and economic instability.

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    • Figure 1. Transmission mechanism links of the politically generated shocks affecting the economy
    • Figure 2. Quarterly growth rates of Argentina’s real GDP in 2016–2018
    • Figure 3. Annual inflation rate in Argentina during 2016–2018
    • Figure 4. USA/ARS nominal exchange rates in 2018
    • Figure 5. Factual and target annual inflation rate in Turkey
    • Figure 6. Annual consumer and basic inflation rates in comparison with the inflation target in Ukraine
    • Table 1. National features of the structure of monetary policy in Argentina, Turkey, and Ukraine
    • Table 2. Indicators of Argentina’s macroeconomic development in the post-crisis period
    • Table 3. Turkey’s macroeconomic development indicators in the post-crisis period
    • Table 4. Macroeconomic development indicators of Ukraine in the post-crisis period