№ 7/2018

Fìnansi Ukr. 2018 (7): 7–26

MONETARY POLICY

KOZIUK Viktor ¹

¹West Ukrainian National University
OrcID ID : https://orcid.org/0000-0002-5715-2983

Monetary autonomy and price stability in commodity economies

A trilemma problem has been the focus of global monetary economics debates recently. Many countries try to adjust they policy to financial integration challenges and follow the logic of the hybrid trillema choice. Commodity-rich countries are a specific group because of vulnerability to terms of trade and capital flows shocks, thus their monetary regimes are subject to external-pressure testing. This paper invstigates how monetary autonomy, as well as exchange rate volatility, may affect price stability in resource-abundant countries and which structural factors determine the level of the monetary autonomy index. Based on example of commodity-rich economies, it is shown that the trilemma choice is made taking into account how monetary policy regime may work out the best price stability result, with limitations of potential shocks profile, as well as political and institutional capability to shocks adjustments. It’s empirically found that price stability is in non-linear relation with the level of monetary autonomy. Also low exchange rate volatility is not a guaranty for low and less variable inflation. Multiple regressions show that the duration of inflation targeting and financial depth are in inverse relationship with the corresponding index, and such factors as the export structure and economic complexity are not significant. Some non-linear relations between price stability and trilemma indexes also support the idea that resource-rich countries are not homogenous. Price stability is maintained best when inflation targeting and the corresponding political regime and institutional maturity are combined, allowing exchange rate flexibility and contributing to financial development. The hybrid trilemma choice requires large external assets hoarding for the counter-cyclical purpose, but this should be supported by a relevant political regime of control over the commodity rent distribution.

Keywords:trilemma choice, price stability, inflation targeting, commodity economies, financial development

JEL: E58, E59, O23, Q33

KOZIUK V. . Monetary autonomy and price stability in commodity economies / V. . KOZIUK // Фінанси України. - 2018. - № 7. - C. 7-26.

Article original in Ukrainian (pp. 7 - 26)

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