THE KEY POLICY RATE AS A MONETARY POLICY INSTRUMENT: FORECASTING WITH ECONOMETRIC METHODS
Abstract
The purpose of the investigation is forecasting of the key policy rate of Ukraine with econometric methods and models, namely autoregressive models. The following research methods were used in the investigation: methods of economic and mathematical modeling, econometric analysis, autoregressive models, ARIMA and VAR models. One of the main tools of monetary policy is the key policy rate. The most famous monetary rule for setting the discount rate is known as the Taylor rule. Making correct decisions regarding the level of the key policy rate involves the use of mathematical methods and models for forecasting the main macroeconomic indicators of the country's development, in particular, econometric methods and models. The economic variables that affect the real GDP of Ukraine are analyzed. The results of the analysis of variables for causality and the test of series for stationarity are presented. An approach to modeling the real GDP of Ukraine with ARIMA and VAR models was implemented and a forecast for the first quarter of 2022 was obtained. It is worth noting that the model reflects the trend until 2022 without taking into account the war factor. The Taylor monetary rule was applied to forecast the key policy rate for the first quarter of 2022. The situation before russia full-scale invasion of Ukraine and the current situation regarding the level of inflation and the forecast of real GDP are also analyzed. The implemented models are adequate, which is confirmed by a number of econometric tests, so it can be used for modeling and forecasting the quarterly real GDP in Ukraine. The application of Taylor classical monetary rule indicates the expediency of its use for the economy of Ukraine. According to forecasts of the ARIMA model, the key policy rate should be set at the level of 10.5%, and according to the forecast of the VAR model, at the level of 11%. So, in order to achieve the goal of monetary policy, it is advisable to use the classical Taylor rule for the economy of Ukraine, but a sustainable model of the economy should be developed and inflation risks should be taken into account when making decisions. The NBU should conduct a restraining monetary policy due to inflationary risks. Currently, because of the war, monetary instruments of influence are ineffective, so the NBU first decided to keep the discount rate at 10%, and later increased it to 25%.
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