International Experience and Implementation of the Monetary Regime of Inflation Targeting in Ukraine

Abstract

The aim of the article is to study the international experience, the experience of implementing the monetary regime of inflation targeting in Ukraine and formulate conclusions based on the results of the analysis of such implementation. It is determined that the basis of the practice of inflation targeting constitutes the idea that there are exclusively rational (inflationary) expectations of economic entities, which are subject to accurate calculation and influence. However, the presented arguments (the existence of business cycles, criticism from the position of adherers of behavioral economics, asymmetric information in financial markets) give grounds to assert that monetary policy can only preestimate the expectations of economic agents with a certain degree of probability. This explains the lack of an accurate correlation between the change in the central bank’s interest rate and its impact on the inflation rate. Based on the experience of foreign countries, it has been determined that at the first-priority stages of implementation of the studied monetary regime in the analyzed examples, there is a tendency to reduce the level of inflation due to increased requirements for the independence of central banks, their transparency and transparency of the monetary policy. The studied examples of the introduction of the monetary regime of inflation targeting show that the co-dependence of the regulatory influence of central banks and inflationary processes is caused by numerous factors (the formation of the institutional structure, the duration of the fight against inflationary processes, etc.). Further on, crisis situations reveal the peculiarity of the studied monetary regime: central banks do not directly manage inflationary processes, but adapt to them and curb inflation by means of a «soft» adjustment (as evidenced by the constant change in forecast analytics on inflation in future periods). The practice of introducing inflation targeting in Ukraine began in 2015 and there was a tendency to curb inflationary processes (which, in principle, is typical for the first-priority stages of the implementation of this monetary regime in other countries). However, the full-scale invasion of Ukraine by the Russian Federation in February 2022 made it impossible to continue the practice of implementing this monetary regime (due to the abandonment of the floating exchange rate, restrictions on foreign exchange transactions, monetary financing of the budget, etc.), which indicates limited opportunities for inflation targeting in extraordinary (crisis) situations.

Keywords

• monetary regime
• inflation targeting
• rational expectations
• account rate
• inflation rate