Assessing the efficiency of the monetary transmission mechanism channels in Ukraine

The paper is focused on the performance features of the monetary transmission mechanism (MTM) in Ukraine as a small open economy. To assess the efficiency of monetary transmission channels, it is important to disclose their interaction, define criteria and tools for analyzing their impact on key macroeconomic parameters. The study deepens approaches to the analysis of the intensity of using monetary, credit, interest rate and exchange rate channels in Ukraine in 2005–2020 and detects violations in the functioning of the MTM. Using economic and statistical methods and regression models, the influence of the main channels of monetary transmission on real GDP growth rate and inflation in Ukraine was assessed. It was concluded that it is advisable to clarify the conditions for increasing the efficiency of MTM in Ukraine; also, the parameters of forecasting the intensification of its channels in the medium and long term are determined. The paper highlights measures to improve the formation of volume and structure of the monetary base and monetary aggregates, improve credit and investment climate, and increase the efficiency of monetary regulation. Moreover, interest rate and foreign exchange policies of the central bank to transmit impulses from the decisions of monetary authorities to market participants were substantiated.

The Channels of Transmission of Monetary Policy

This chapter explores the monetary transmission mechanism (MTM) in low financial development countries (LFDCs). It successively discusses the interest rate, asset price, bank credit, balance sheet, expectations, and real balance channels. For each channel, conceptual aspects about how it operates, how it transmits monetary policy impulses to the economy’s financial and real spheres, are first presented. Next, the impact of the specificities of LFDCs on the channel’s strength and reliability are examined and the available empirical evidence is surveyed. The chapter concludes with a global assessment of the effectiveness of the monetary transmission mechanism in LFDCs. Evidence points to a transmission mechanism that is effective although not very strong, and possibly also more uncertain than in advanced and emerging market countries.

Specificities of the Monetary Transmission Mechanism within the Bulgarian Currency Board Framework: The first five years

This paper presents an overview of the channels of monetary transmission and their manifestation in Bulgaria – a country in a currency board arrangement – in the first five years after the introduction of the regime. The presence of such a mechanism of transmission requires some form of macroeconomic discretion. The latter is approximated here with dynamics in the single fiscal account present on the balance sheet of the currency board.

ROLE OF THE CREDIT CHANNEL IN THE MECHANISM OF MONETARY TRANSMISSION IN UKRAINE

The article provides a comprehensive analysis of the functioning of the credit channel of the monetary transmission mechanism in Ukraine in 2005–2020, defines its role, the main tasks and features of its use in the system of modern monetary regulation of the economy. It has been substantiated that the main task of managing the credit channel of the transmission mechanism is to increase the efficiency of monetary regulation by transferring monetary impulses from the central bank to the real sector of the economy in order to ensure economic growth. Criteria are determined, basic indicators are proposed and methods for assessing the effectiveness of the functioning of the credit channel of monetary transmission are improved. As a result of calculations, it was proved that in 2005–2020 in Ukraine, the credit channel of the monetary transmission mechanism had a positive effect on the growth rate of the monetary aggregate M3 and the growth rate of the real gross domestic product, while the increase in government bond yields and the share of non-performing loans had a negative impact on lending activity and the rate of lending to the economy. The main reasons for the low efficiency of using the credit channel were the deterioration of the financial condition of enterprises and households, a decrease in their creditworthiness, low demand for investment resources, a high proportion of non-performing loans, significant volumes of government bonds issued by the government and high credit risks, which made it difficult for the central bank to adopt effective decisions and constrained economic growth. The main directions of improving the management and increasing the efficiency of the functioning of the credit channel of monetary transmission in Ukraine on the basis of improving the credit and investment climate, improving the methodology for assessing credit risks, increasing the efficiency of monetary regulation and the implementation by the central bank of a monetary policy adequate to economic conditions have been identified. The forecast parameters and conditions for the effective functioning of the credit channel of the monetary transmission mechanism in Ukraine in the medium and long term are proposed.

THE INFLUENCE OF THE FOREIGN EXCHANGE CHANNEL OF THE TRANSMISSION MECHANISM AND FOREIGN EXCHANGE POLICY ON ECONOMIC DEVELOPMENT

The article examines the peculiarities of the functioning of the currency channel of the monetary transmission mechanism of the central bank and its impact on the economic development of Ukraine in 2005-2020. The study was conducted on the basis of the use of linear regression models and the calculation of relevant indicators that characterize the reliability of the proposed models. The main economic parameters on which the dynamics of the hryvnia exchange rate has the greatest influence are determined and the methods of assessing the efficiency of the monetary channel currency transmission channel are improved. Based on the analysis and quantitative assessment of the impact of the weighted average exchange rate of hryvnia to the US dollar on the dynamics of the monetary base, monetary aggregates, lending rates, the base interest rate of the National Bank of Ukraine and the yield on short-term domestic government bonds, the main economic tendencies and links in the mechanism of functioning of the currency channel of monetary transmission were defined. In order to assess the impact of the currency channel on the main macroeconomic indicators, the impact of the dynamics of the hryvnia exchange rate on the growth rate of real GDP, inflation, the level of monetization of the economy and financial dollarization was determined. It is substantiated that the appreciation of the hryvnia exchange rate against leading currencies significantly restrains the growth rate of real GDP and contributes to rising inflation, which requires additional measures by the NBU to improve currency regulation and control. Based on the generalization of the NBU practice, the main directions are identified and a it was developed the system of measures to improve the efficiency of the monetary channel of the monetary transmission mechanism based on increasing the banking system's resilience to internal and external shocks, maintaining relative exchange rate stability and low volatility, ensuring effective foreign exchange market management, maintaining the balance of payments, as well as improving the efficiency of currency regulation and the implementation by the central bank of a prudent monetary policy that ensures the effective transmission of monetary impulses from the central bank to the real sector of the economy.