Features and factors of contemporary inflation dynamics

Grytsenko, Andrii; Bandura, Oleksandr

doi:10.15407/etet2020.01.077

“…Еще в апреле 2022 г. она говорила: "Если я подниму ставки сегодня, это не снизит цены на энергию. Следовательно, мы начали этот путь постепенной отмены мягкой монетарной политики"3 .Сравнение глобальной среды и природы стагфляционных шоков 1970-х и 2020-х. Полномасштабное военное вторжение РФ в Украину, широкомасштабные санкции, введённые многими странами против страны-агрессора, и превращение РФ цен на энергоносители и препятствий для торговли продуктами питания в экономическое оружие привели к стремительному росту инфляции (рис.…”

unclassified

Global stagflation shocks and the revision of monetary policy: lessons from the crises of the 1970s and 2020s

Krychevska¹

2022

Ekon. teor.

5

0

View full text Add to dashboard Cite

The article clarifies what lessons for monetary policy under conditions of stagflationary shocks can be drawn from the analysis of inflation drivers, the global environment and approaches to macroeconomic policy in the run-up to and during the oil shocks of the 1970s and the supply shocks of the 2020s, caused by the pandemic and by the global effects of the full-scale war of the Russian Federation against Ukraine. The following factors have been identified that worsen the situation compared to the crisis of the 1970s for the monetary policy: larger-scale geopolitical threats; a wider complex of supply shocks and accelerated restructuring of the energy supply system under the influence of growing geopolitical threats; much more complex global supply chains; the more differentiated nature of countries’ vulnerability to the current supply shocks, that creates new sources of external instability as a result of the growing gap between interest rates and changes in exchange rates; strengthening the global implications of US Fed policy under conditions of stronger global integration; significantly higher levels of private and public debt; intensification of political and economic confrontation between the largest economies of USA and China. It is shown that the more favorable conditions for monetary policy compared to the 1970s are the developed institutional mechanism of anti-inflationary monetary policy, smaller institutional opportunities for emerging a "wage-price" spiral; greater resilience of EMs to external shocks. In order to increase the resistance of national and global economies to stagflationary shocks we need following corrections in monetary policy: decisive anti-inflationary policy in the face of threat of pro-inflationary behavior of economic agents; coordinated optimization and ensuring trust in monetary and fiscal policy, shifting fiscal policy to overcoming aggregate supply constraints; loosening the assumption of absolute elasticity of aggregate supply in the world of globalization and technological progress; correction the methods of measuring economic slack and estimation of equilibrium interest rate; adaptation of strategy, communication and tools of monetary policy to conditions of radical uncertainty; expanding the concept of monetary policy independence in small open EMDEs by taking into account the disproportionately large losses of this group of countries from importing inflation and recession from leading developed economies.

show abstract

Optimization of macroeconomic policy and stabilization of cyclical economic dynamics

Bandura¹

2021

Economy and forecasting

1

0

View full text Add to dashboard Cite

This paper demonstrates that, despite the current mandate of monetary policy, its final goal (at least for central banks of developed countries) is the control of three main macroeconomic variables — economic growth, employment and inflation, — regardless on actual mandate for this policy. However, the priorities of realization of the final goal may face the imperfection of macroeconomic models and rules of monetary policy, which will make it impossible to control all three macroeconomic variables at the same time. The article proposes a new instrument for monetary policy — aggregate cumulative market imperfection — to optimize macroeconomic variables and stabilize cyclical economic dynamics. The author demonstrates the main competitive advantages of this instrument of monetary policy as compared with typical models of macroeconomic dynamics and simple rules of monetary policy (Simons, Friedman, and Taylor rules). In particular, this instrument is valid for any combination of market conditions, for any economy and for any moment of real time. It can be used simultaneously as: 1) a target of monetary policy; 2) a simple rule of monetary policy correction in the short-run; 3) a reaction function to evaluate a backward connection between the regulator’s actions and the effect of these actions on current economic situation; and 4) an instrument to stabilize cyclical economic dynamics; 5) an instrument to forecast starting (ending) point of recessions and shift in macroeconomic trends. If we can hold the aggregate cumulative market imperfection within a given optimal interval with the help of government regulations (i.e. to target this indicator only) using all possible instruments both of monetary, and (if necessary) of other kinds of regulation policy, we will be able to optimize all three main macroeconomic variables. Optimality of these variables means providing maximum economic growth and employment under comfortable inflation for any combination of market conditions and for any moment of calendar time, which will at the same time stabilize cyclical economic dynamics. In doing so, we will not target each of these three variables separately, that is, it is practically impossible to determine quantitatively their optimal values as they change permanently over time together with the constant change of current combination of market conditions.

show abstract

Optimization of macroeconomic policy and stabilization of cyclical economic dynamics

Bandura¹

2021

Ekon. prognozuvannâ

Self Cite

1

0

View full text Add to dashboard Cite

This paper demonstrates that, despite the current mandate of monetary policy, its final goal (at least for central banks of developed countries) is the control of three main macroeconomic variables — economic growth, employment and inflation, — regardless on actual mandate for this policy. However, the priorities of realization of the final goal may face the imperfection of macroeconomic models and rules of monetary policy, which will make it impossible to control all three macroeconomic variables at the same time. The article proposes a new instrument for monetary policy — aggregate cumulative market imperfection — to optimize macroeconomic variables and stabilize cyclical economic dynamics. The author demonstrates the main competitive advantages of this instrument of monetary policy as compared with typical models of macroeconomic dynamics and simple rules of monetary policy (Simons, Friedman, and Taylor rules). In particular, this instrument is valid for any combination of market conditions, for any economy and for any moment of real time. It can be used simultaneously as: 1) a target of monetary policy; 2) a simple rule of monetary policy correction in the short-run; 3) a reaction function to evaluate a backward connection between the regulator’s actions and the effect of these actions on current economic situation; and 4) an instrument to stabilize cyclical economic dynamics; 5) an instrument to forecast starting (ending) point of recessions and shift in macroeconomic trends. If we can hold the aggregate cumulative market imperfection within a given optimal interval with the help of government regulations (i.e. to target this indicator only) using all possible instruments both of monetary, and (if necessary) of other kinds of regulation policy, we will be able to optimize all three main macroeconomic variables. Optimality of these variables means providing maximum economic growth and employment under comfortable inflation for any combination of market conditions and for any moment of calendar time, which will at the same time stabilize cyclical economic dynamics. In doing so, we will not target each of these three variables separately, that is, it is practically impossible to determine quantitatively their optimal values as they change permanently over time together with the constant change of current combination of market conditions.

show abstract

Features and factors of contemporary inflation dynamics

Cited by 6 publications

References 2 publications

Global stagflation shocks and the revision of monetary policy: lessons from the crises of the 1970s and 2020s

Global stagflation shocks and the revision of monetary policy: lessons from the crises of the 1970s and 2020s

Optimization of macroeconomic policy and stabilization of cyclical economic dynamics

Optimization of macroeconomic policy and stabilization of cyclical economic dynamics

Contact Info

Product

Resources

About