Inflation Targeting As a Tool for Maintaning Price Stability of The National Bank of Ukraine
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Date
2023
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Одеський торговельно-економічний інститут Київського національного торговельно-економічного університету
Abstract
Introduction. Inflation targeting is a tool for ensuringprice stability in the economy and therefore requiresharmonious coordination and communication amonggovernment institutions. At the same time, the central bankmust adhere to a certain policy instrument, the established legalrules, which are fixed in its mandate, or act at its discretion.Nowadays, the most common rule of monetary policy isinflation targeting.Aim and tasks. The purpose of the article is to explainthe expediency of using the inflation targeting regime to keepinflation at a certain target level, which is determined by thecentral bank taking into account the current state of theeconomy.Results. The theoretical model of Taylor is considered,which is based on inflation assessment in the form of a simpleinterest rate rule based on monetary policy instruments thatensure convergence of the inflation forecast to the target valuein the medium term. The obtained results reflect the volatility ofthe indicators of the objective function in the data range of 2015Q3–2021 Q2 and confirm the weight of the gap of variablevalues that are estimated to be insignificant (95%). Using theGMM method, the relationship between the indicators of theobjective function and their impact on the inflation rate through the use of the inflation targeting regime was verified. Inparticular, the volatility of variables such as the inflation gap,short-term interest rate, output gap, and exchange rate gap andtheir impact on the target inflation rate was revealed on the timehorizon of monetary policy. Smoothing out gaps in variables isone of the goals of the central bank's reaction function under theinflation targeting regime. The use of the GMM methodconfirms the validity of the application of Taylor's ruleregarding the feasibility of choosing an objective function withpredetermined variable parameters at different samplingintervals.Conclusions. The increase in the volatility of variableparameters in the objective function of central banks under theinflation targeting regime is explained by global crises and thesensitivity of macroeconomic indicators to fluctuations in theeconomic situation. This is the main reason why central banksstrictly follow the rules of monetary policy, which allow the timely smoothing of exogenous shocks in the economy.
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Keywords
Taylor rule, gap output, central bank, inflation, targeting
Citation
Inflation Targeting As a Tool for Maintaning Price Stability of The National Bank of Ukraine [Електронний ресурс] / Dmytro Khokhych, Iryna Kulaga, Oleksii Melnyk, Olena Tkachenko // Економіка. Екологія. Соціум : електр. наук.-практ. журн. / Ін-т проблем ринку та екон.-еколог. дослід. НАН України, Одес. торг.-екон. ін-т Київ. нац. торг.-екон. ун-ту, Державна вища техн.-екон. Школа ім. Б. Маркевича ; [редкол.: Коваль В. В. (голов. ред.) та ін.]. – Електрон. текст. дані. – Одеса, 2023. – Т. 7, № 2. – С. 67–78. – Режим доступу: https://ees-journal.com/index.php/journal/article/view/218/180. – Назва з титул. екрану.