The Impact of Monetary Policy on the Financial Stability of the Banking System: Setting a Modeling Problem

Abstract

The publication is concerned with highlighting the results of the carried out analysis of the existing practice of developing macroeconomic models directed towards determining the main parameters of monetary policy of central banks, as well as assessing their impact on the indicators of financial stability of the banking system. Given the low efficiency of the traditional approaches to the formation of the monetary rule both in countries with developed market economies and in countries with small open economies (in particular, Taylor rule), possible ways to solve this problem are proposed taking into account the existing experience in shaping monetary policy parameters in the context of inflation targeting, which is already available at the NBU. The strengths and weaknesses of the main approaches to the modeling of the monetary transmission mechanism, as well as the forecasting of its impact on the financial stability of the banking system, which are used in the formation of basic and auxiliary models of the central bank, are analyzed. Particular attention is paid to structural econometric models, vector autoregression models and dynamic stochastic models of general equilibrium. As a result, a possible variant for developing an approach to macroeconomic modeling is proposed, in the framework of which assessment and analysis of the impact of monetary policy on the indicators of financial stability of the banking system is envisaged. The practical implementation of this approach makes it possible to develop models for assessing and analyzing the efficiency of the current monetary policy, projecting macroeconomic development scenarios in the short and medium term, which will both directly and indirectly determine the indicators of financial stability of the banking system.

Analysis of the Impact of Digital Currency on Traditional Banking and Financial Stability

“…The rise of blockchain technology makes decentralized finance possible and leads a new round of innovation in the financial field. Digital currency, as a representative product of blockchain technology, such as Bitcoin and Ethereum, has begun to have a far-reaching impact on traditional banking business, but also brought new challenges to financial stability [1]. In traditional banking, the growth of digital currency has promoted the upgrading and reform of financial services.…”