№ 9/2019

Fìnansi Ukr. 2019 (9): 111–126https://doi.org/10.33763/finukr2019.09.111

MONETARY POLICY

KHOKHYCH Dmytro ¹

¹Kyiv National Economic University named after Vadym Hetman
OrcID ID : https://orcid.org/0000-0003-3787-939X

Mechanism of interaction of inflation targeting and economic growth in Ukraine

The article studies the interaction mechanism of inflation targeting and economic growth in a mid-term perspective. The potential channels of this influence are analyzed as well as modern economic studies testing their performance. The effects of the various options for implementing inflation targeting in countries targeting inflation are compared. On the example of Ukraine, the reliability of the hypothesis of inflation reduction, price level volatility through the inflation expectations channel is tested, which confirms the endogenous nature of the decision of the National Bank for a gradual transition to the inflation-targeting regime. Inflationary expectations of economic agents have a positive effect on the dynamics of real output if they are confident that the monetary authorities will achieve inflation targets. The high volatility of inflation, in contrast, contributes to uncertainty, which leads to higher costs for firms and higher prices. This, in turn, makes borrowed funds more expensive and reduces investment. This hypothesis is also confirmed in developing countries, where the institutions of monetary authorities are highly dependent on political power. The necessity of increasing the attention of the monetary authorities to the exchange rate channel of the transmission mechanism of monetary policy and the gradual de-dollarization of the economy as a negative factor in influencing the inflation rate in Ukraine is indicated. Despite the specifics of money transmission channels in dollarized economies, which are mainly developing countries, the use of inflation targeting introduces positive signals for economic entities. The use of a mixed inflation-targeting regime, including free currency exchange rate formation, made it possible for the central bank to achieve the planned inflation target level. This suggests that the implementation of the inflation targeting policy has been successful under the conditions of soft pegging to the exchange rate. Based on the analysis, recommendations are formulated for choosing the optimal strategy for economic growth of the monetary policy regime in Ukraine.

Keywords:inflation targeting, economic growth, inflation expecting, monetary policy, currency rate, prices stability

JEL: E31, E52, E58

KHOKHYCH D. . Mechanism of interaction of inflation targeting and economic growth in Ukraine / D. . KHOKHYCH // Фінанси України. - 2019. - № 9. - C. 111-126.

Article original in Ukrainian (pp. 111 - 126)

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