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A SYSTEM DYNAMICS APPROACH TO MODELING MONETARY SECTOR OF UKRAINE

Journal: University Economic Bulletin. Collection of scientific articles of scientists and post-graduate students (Vol.1, No. 23)

Publication Date:

Authors : ;

Page : 156-163

Keywords : modeling; monetary sector; transmission mechanism; monetary policy; exchange rate targeting; inflation targeting; system dynamics;

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Abstract

Reation in order to identify and analyze monetary policy measures aimed to ensure financial and macroeconomic stability of Ukrainian economy. The subject of the study is theoretical and methodological aspects of the interactions between the main elements of Ukrainian financial system in the money creation process. The main objective of the work is to construct a simulation model of the transmission mechanism of the banking sector in Ukraine reflecting central bank’s monetary policy measures. During the study general scientific methods of analysis, synthesis, comparison, formalization, and specific mathematical modeling approaches of system dynamics were used. The paper presents a conceptual model of the monetary sector of Ukraine that reflects the balance sheet structure of the banking system including aggregate values of banks’ assets and liabilities. While managing their assets and liabilities in accordance with regulations and desired values of financial indicators, banks involve financial recourses in the transmission mechanism creating money supply available in the economy. The paper describes the use of central bank’s direct and indirect instruments of money supply regulation in order to ensure price and exchange rate stability. Causal dynamic relationships between all banking system elements are identified and analyzed. Moreover, the paper presents the concept of monetary policy modeling that determines the optimum combination of central bank’s tools aimed to ensure the sustainability of banking system, avoid negative inflation processes, and support national currency. A system dynamics model developed during the study can be used by the National Bank of Ukraine and state authorities in order to determine efficient monetary policy measures.

Last modified: 2016-07-24 21:13:55