The impact of inflation targeting on macroeconomic indicators in Ukraine


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The correlation between macroeconomic dynamics and the inflation rate is the subject of many economic studies. The principles of monetary policy are developed in classical economics studies, which are based on the theories of Keynes, Phillips, Campbell, etc. However, classic approaches require practical validation, especially with regard to modern economic trends in times of crisis and emerging economies. Therefore, the purpose of the paper is to investigate and summarize the impact of inflation targeting and other key monetary policy instruments on fundamental economic indicators in Ukraine during periods of stability and crises. An empirical analysis is based on official statistics from Ukraine for 2011–2019. This study uses econometric methods (multivariate regression and simultaneous equation model), which are applied for the general and transmission impact of inflation on the estimation of economic growth. The results prove that inflation does not affect (less than 0.46 linear correlation) fundamental economic indicators during periods of real GDP growth and a quarterly CPI level of less than 2%. On the other hand, there are significant simultaneous regressions (more than 0.8 coefficients of determination) between unemployed, spending on real final consumption, hryvnia exchange rate and monetary policy instruments (discount rate, international reserves, amount of government bonds, M3 monetary aggregate) for periods when the quarterly CPI (consumer price index) is more than 2%. Therefore, the traditional monetary policy implications are discussed for emerging economies.

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    • Figure 1. Real GDP (gdpR) and consumer price index (cpi) in Ukraine, 2011 Q1 – 2019 Q4
    • Figure 2. The model of the result of inflation targeting and the real GDP rate in Ukraine for 2013 Q4–2019 Q1, %
    • Table 1. Input and output variables for the effect of inflation targeting on macroeconomic indicators
    • Table 2. The correlation matrix between GDP and CPI variables of the Ukrainian economy for 2011 Q1 – 2019 Q4
    • Table 3. The correlation matrix between CPI and key variables and the Ukrainian economy for 2011 Q1 – 2019 Q4
    • Table 4. Summary statistics for CPI regression models
    • Table 5. Summary statistics for transmission models of inflation targeting in Ukraine (periods when cpi > 2%)
    • Table 6. Summary statistics for the system of inflation targeting models with simultaneous equations in Ukraine (periods when cpi > 2)
    • Conceptualization
      Mykhailo Kuzheliev, Dmytro Zherlitsyn
    • Investigation
      Mykhailo Kuzheliev, Ihor Rekunenko, Guram Nemsadze
    • Project administration
      Mykhailo Kuzheliev
    • Validation
      Mykhailo Kuzheliev, Dmytro Zherlitsyn, Ihor Rekunenko
    • Writing – review & editing
      Mykhailo Kuzheliev
    • Formal Analysis
      Dmytro Zherlitsyn, Guram Nemsadze
    • Methodology
      Dmytro Zherlitsyn, Alina Nechyporenko, Guram Nemsadze
    • Writing – original draft
      Dmytro Zherlitsyn
    • Data curation
      Ihor Rekunenko, Alina Nechyporenko
    • Supervision
      Ihor Rekunenko, Alina Nechyporenko
    • Visualization
      Alina Nechyporenko, Guram Nemsadze