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The interest rate and credit channels of the transmission mechanism in Ukraine's macroeconomic environment

P. Dadashova

Economy and Forecasting, 2016, issue 3, 119-136

Abstract: Due to the crisis in Ukraine during the last years, a need arises for the effective functioning of the economy, which is possible through the improvement of the governmental regulation methods. This applies the monetary policy, whose goals have been shifted from exchange-rate targeting to inflation targeting. The efficiency of such transition depends mostly on the ability of the NBU to use its instruments for the impact on the financial system through the interest rate and credit channels. Therefore, the efficiency of these channels of the transmission mechanism demands investigation. But in the previous research of the transmission of the regulatory impulses through the financial environment, little attention was given to those environment changes. The paper presents results of the evaluation of the power of action of the monetary transmission channels during changes in the financial system. The fiscal pressure, level of monetization and liquidity were defined as the main characteristics of the monetary sphere that influence the transmission mechanism. The vector autoregressive models were used for the analysis. Modeling showed that the interest rate channel of the transmission mechanism changed under the changes in the environment. At the same time, the credit channel was constant regardless the changes in financial sector and rather weak. It is defined that during the monetary policy performance the changes in monetization and liquidity levels should be taken into account as they reorient the banking sector from one instrument to another. Hence, the regulation of the instrument which is currently significant at the current stage is more efficient. The monetary policy independence also plays important role in transmission mechanism action power. The above listed aspects define the need for the regulator to perform a detailed analysis of the finance environment to improve its efficiency. Moreover, the mentioned results should be used in modeling through the use of instruments that can change the benchmarks for the interest rates as it actually happens in Ukraine.

Date: 2016
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