Model of Monetary Policy Parameters Formation

Abstract

The publication presents results of the carried out analysis of existing Western and domestic macro-economic models, which form the basis for determining the key parameters of monetary policy of the central banks in the respective countries. A study on the existing approaches to the formation of monetary rules of central banks in both advanced market economies and countries with emerging markets shows limited possibilities of efficient use of the classic J. Taylor rule and its modifications to form the Monetary Policy of the NBU. The carried out analysis of macro-economic indicators, as well as the use of the econometric analyzing methods, allowed to propose a possible approach to the problem of forming a monetary rule and developing a model of behavior of the NBU regulation of the basic macro-economic indicators together with setting the interest rate. A simultative model built on the basis of quarterly information for 15 reporting periods, displaying the main relationships between endogenous and exogenous variables, which determine the rule of monetary policy of the NBU, allowed to track the direction and nature of the causal relationships between the basic macro-economic parameters in the context of setting the interest rate by the NBU. The calculated forecast values of endogenous variables of the developed model, namely: consolidated balance, exchange rate, real GDP, real wages, interest rate of the NBU, consumer credit volumes, and consumer price index allowed to identify manageable tendencies in changing the values of these indicators and to conduct an analysis of possible scenarios of a macro-economic situation evolving. Practical use of the proposed approach (in the process of analyzing possible scenarios for the evolvement of key parameters of monetary policy and calculations of the forecast values of interest rate, consumer price index and other interconnected macro-indicators with carrying out the appropriate model calculations, the development of a structured multi-sectoral model, as well as taking into account the possible lag effects of changing economic conditions and the impact of qualitative factors on macro-indicators) potentially will allow a qualitatively new approach to the formation of mechanisms for analyzing and forecasting the monetary policy of Ukraine.

Keywords

• monetary policy
• simultative model
• interest rate
• analysis
• macro-economic model