Predicting Bank Defaults in Ukraine: A Macro-Micro Perspective

This paper develops an early warning model (EWM) for a micro-macro analysis of individual and aggregated bank vulnerabilities in Ukraine. We applied a stepwise logit for predicting defaults at Ukrainian banks based on a panel bank and macro-level data from Q1 2009 to Q3 2019. Next, we aggregated individual bank default probabilities to provide policymakers with information about the general state of the financial system with a particular focus on generating a signal for countercyclical capital buffer (CCB) activation. Our key findings suggest that the probability of default exceeding 11% could signal about a vulnerable state in a bank and, in the aggregated model, in a financial system in general. The aggregated model successfully issues an out-of-sample signal of a systemic crisis four periods ahead of the start of the 2014-2015 turmoil.

The Missing “Cycle” Part and Other Thoughts on the Global Financial Cycle

The paper studies co-movement in capital flows, which gives rise to a phenomenon dubbed the global financial cycle. It first estimates a global common factor in capital flows using a factor model and draws inferences of its quantitative importance. Then the paper studies the cyclical properties of the extracted factor and concludes that, in general, its importance for capital flows is relatively limited. This may suggest that the Mundell-Fleming trilemma (as opposed to dilemma) still describes the trade-off faced by policymakers, and domestic policies play the primary role in maintaining macroeconomic stability.

How Does the Interest Rate Influence the Exchange Rate?

Understanding the effect of increasing the key policy rate on the exchange rate of the national currency remains one of the most critical issues for central banks. The goal of this study is to infer about the signs and the magnitude of this impact using existing studies conducted for 30 countries and aggregating estimates applying the meta-analysis procedure. Results indicate that the short-term impact of interest rate changes on the exchange rate is positive and statistically significant, although the economic significance is weak, while the longterm relationship is found to be insignificant. The analyzed studies do not reveal any evidence of publication bias, which contributes to the validity of empirical findings. The received results conclude that there might be a short-term appreciation of the hryvnia in response to an increase in the key policy rate in Ukraine.

Consumer Lending in Ukraine: Estimation of the Equilibrium Level

In line with Kiss et. al (2006), we have constructed an analytical framework for the timely detection of risks connected with the rapid growth of consumer lending, based on an econometric model for the equilibrium level of household and consumer loans. Results from an estimation on a panel of countries were extrapolated to the Ukrainian banking sector. The model suggests that after two waves of strong deleveraging starting in 2009 and in 2014, the consumer credit stock in 2019 is still well below its equilibrium level in Ukraine, despite the recent strong nominal dynamics.

The Impact of Weather Conditions on Economic Activity in Ukraine

This article explores the impact of weather conditions on core sectors of the Ukrainian economy and the composite index of economic activity in Ukraine. We build autoregressive distributed lag (ARDL) models using statistical data provided by the Central Geophysical Observatory named after Boris Sreznevsky (CGO) and the State Statistics Service of Ukraine for the period 2004-2019. The obtained outcomes show that fluctuations in the air temperature and precipitation are significant determinants of output in different sectors (specifically agriculture, construction, manufacturing, and energy). Therefore, the inclusion of weather conditions into models may potentially improve the modeling properties and forecasting of economic activity.

Foreign Assistance and Consumption Inequality: Does the Structure of Aid Matter?

This paper uses a dataset of 75 countries covering 1960-2010 to examine whether foreign aid has any effect on consumption inequality. The variable of assistance is split into grants and loans – the central hypothesis being different non-linear impact of each on inequality – with the impact of loans being hump-shaped and grants “U”-shaped. The results corroborate the direction and the type of impact that foreign assistance has on inequality. In addition, the outcomes for quartile data subsets show that the relationships between foreign assistance and inequality differ depending on a country’s GDP per capita. However, the hypothesis regarding the influence of coup d’états hasn’t been confirmed.

Data Science Opportunities at Central Banks: Overview

This paper reviews the main streams of Data Science algorithm usage at central banks and shows their rising popularity over time. It contains an overview of use cases for macroeconomic and financial forecasting, text analysis (newspapers, social networks, and various types of reports), and other techniques based on or connected to large amounts of data. The author also pays attention to the recent achievements of the National Bank of Ukraine in this area. This study contributes to the building of the vector for research the role of Data Science for central banking.

Price-Setting in Ukraine: Evidence from Online Prices

This study examines price duration and price-setting mechanisms in Ukraine using web-scraped prices. I found that the mean average duration of prices is about 2 months. Average price duration is lower for those products that are more exposed to temporary price changes (sales). Moreover, imported goods have a higher average price duration compared to domestic goods. In terms of the price-setting mechanism, the data supports timedependent price setting behavior over state-dependent. The evidence of time-dependent price setting is 1) the size of price change being positively related to the age of price; 2) many price changes of a size close to zero; and 3) the hazard function being non-increasing for the whole sample and tends to be flatter within relatively homogeneous groups of products.

Short-Run Forecasting of Core Inflation in Ukraine: a Combined ARMA Approach

The ability to produce high-quality inflation forecasts is crucial for modern central banks. Inflation forecasts are needed for understanding current and forthcoming inflation trends, evaluating the effectiveness of previous policy actions, making new policy decisions, and building the credibility of a central bank in the eyes of the public. This motivates a constant search for new approaches to producing inflation forecasts. This paper analyses the empirical performance of several alternative inflation forecasting models based on structural vs. data-driven approaches, as well as aggregated vs. disaggregated data. It demonstrates that a combined ARMA model with data-based dummies that uses the disaggregated core inflation data for Ukraine allows to considerably improve the quality of an inflation forecast as compared to the core structural model based on aggregated data.

The Effectiveness of the Monetary Transmission Mechanism in Ukraine since the Transition to Inflation Targeting

This paper analyzes the effectiveness of monetary transmission channels in Ukraine since the National Bank of Ukraine (NBU) transitioned to inflation targeting and after the central bank established its new approach to monetary policy implementation. The authors conclude that the central bank has sufficient control over short-term interest rates in the interbank market and that it uses them to influence other financial market indicators. At the same time, further transmission via the interest rate channel is constrained by weak lending and the banking system’s slow post-crisis recovery. The exchange rate channel remains the most powerful avenue of monetary transmission. After the NBU switched to a floating exchange rate and an active interest rate policy, its key rate became a means of influencing exchange rates. The exchange rate channel’s leading role is expected to gradually decrease but remains important, as is typical for small open economies.