From Kyiv to Frankfurt? Ukraine's Monetary Policy, 2009-2026

Etienne Farvaque, Alexander Mihailov () and Piotr Stanek ()
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Piotr Stanek: Department of International Economics, Krakow University of Economics

No em-dp2026-08, Economics Discussion Papers from Department of Economics, University of Reading

Abstract: This paper examines how monetary policy rules operate under conditions of institutional reform, external constraints, and war in Ukraine as a case of prospective European monetary integration. Using monthly data from 2009 to 2026, we estimate Taylor-type reaction functions for the National Bank of Ukraine, allowing the setting of the policy rate to respond to inflation gaps, industrial-production activity gaps, exchange-rate pressure, interest-rate smoothing, and regime-specific wartime interactions. We then compute deviations between actual and model-implied policy rates and test whether these deviations are associated with institutional shifts, geopolitical shocks, conflict intensity, and social disruption. The results show that Ukrainian monetary policy remained partly rule-like even during periods of extreme stress. Interest-rate smoothing is strong, exchange-rate pressure enters the effective reaction function, and the largest deviations cluster around moments of nonlinear constraints: the 2015 currency crisis, the initial full-scale-invasion policy freeze, and the June 2022 credibility-restoring interest rate hike. These findings suggest that wartime central banking is not best understood as a suspension of rules. Rather, war generates constraint-contingent rule adaptation, in which credibility is preserved through temporary modifications of the instruments, coefficients, and state variables governing policy. The paper contributes to debates on rules versus discretion by showing how monetary-policy credibility can coexist with resilience-oriented adjustment in an emerging market economy exposed to geopolitical rupture. It also speaks to Ukraine's European trajectory: eventual monetary integration will depend not only on nominal convergence, but on the demonstrated capacity to preserve rule-based credibility under extreme political and security shocks.

Keywords: Taylor-type rules; Ukraine; exchange-rate stabilization; inflation targeting; geopolitical risk; wartime monetary policy; National Bank of Ukraine (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 F41 O52 P34 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2026-08-05
New Economics Papers: this item is included in nep-mon
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