Does Monetary Policy Transmission in Ukraine Go Through the Interest Rates?
EERC Working Paper Series
56 Pages Posted: 16 May 2007 Last revised: 28 May 2009
Date Written: September 30, 2008
Abstract
The paper investigates the monetary transmission mechanism in Ukraine and in particular studies the relative importance of its interest rate channel (IRC). First, we discuss the essential institutional arrangements associated with conduct of monetary policy. Second, we quantify the IRC by means of semi-structural five-variable VAR model. We use the total reserves of banking system as monetary policy variable and employ a simple model of market for bank reserves to disentangle monetary policy shocks. To assess the relative importance of IRC, we have applied special procedure to isolate the interest rate component of a monetary policy shock in total reserves. We have found some weak traces of interest rate channel, yet have not detected persuasive evidence that the IRC dominates other channels of monetary transmission. Further, we use preferred specifications to conduct a set of policy experiments. First, we consider loosening of reserve requirements of realistic magnitude. Our estimates predicted that a 19 percent hike in total reserves forces interest rate to fall by 4-6 percentage points, prices to rise by 0.2 percent or 0.9 percent depending on the measure and output to expand by 0.2 -0.7 percent (all over 6 to 12 months). Second, we simulate and interpret the working of monetary policy in the presence of some counterfactual shifts in the economy that affect the speed of economy’s adjustment to long-run equilibrium – unfavorable terms of trade shock, persistently higher inflow of capital and liberalization of regulated prices. Finally, we briefly discuss implications of our results for Ukraine’s recent anti-inflation policy.
JEL Classification: C32, C51, E4, E52
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Gert Peersman and Frank Smets
-
Legal Structure, Financial Structure, and the Monetary Policy Transmission Mechanism
-
Legal Structure, Financial Structure, and the Monetary Policy Transmission Mechanism
-
The Monetary Transmission Mechanism: Evidence from the G-7 Countries
By Stefan Gerlach and Frank Smets
-
Monetary Transmission in the Euro Area: Where Do We Stand?
By Ignazio Angeloni, Anil K. Kashyap, ...
-
Financial Systems and the Role of Banks in Monetary Policy Transmission in the Euro Area
By Michael Ehrmann, Leonardo Gambacorta, ...
-
A VAR Description of the Effects of Monetary Policy in the Individual Countries of the Euro Area
By Benoit Mojon and Gert Peersman
-
Some Stylised Facts on the Euro Area Business Cycle
By Anna Maria Agresti and Benoit Mojon
-
By Ignazio Angeloni, Anil K. Kashyap, ...
-
By Ignazio Angeloni, Anil K. Kashyap, ...