In 2022, a full-scale armed attack by Russia combined with increased global risks increased uncertainty and made it difficult to fulfill the NBU’s mandate to ensure price and financial stability and support sustainable economic growth. As a result, the list of topics that are the focus of research activities of the National Bank has significantly expanded.
In view of this, the National Bank updated priority areas of research until 2025. The relevant directions will be analyzed by specialists of the National Bank. In addition, we invite external contributors to research specific topics with the aim of deepening the scientific discussion and multifaceted study of directions important for preserving macro-financial stability and restoring the economy of Ukraine.
The updated list of research priorities includes the following directions:
1) Monetary policy during the war period and during the post-war recovery of the economy
Considering the challenges of a full-scale war, the NBU temporarily departed from the traditional format of inflation targeting, fixing the official exchange rate of the hryvnia to the US dollar and introducing a number of administrative restrictions on currency transactions and cross-border movement of capital. At the same time, from June 2022, the NBU returned to an active interest rate policy with the aim of preserving exchange rate stability, controlling price dynamics, and protecting hryvnia incomes and citizens’ savings from inflationary depreciation. In addition, in the second half of 2022 and the beginning of 2023, the National Bank attracted additional monetary instruments, in particular, increased the required reserves of banks, for increasing the effectiveness of the monetary transmission mechanism in conditions of significant structural liquidity surplus of the banking system.
When making relevant decisions, the NBU took into account a detailed analysis of world experience, internal and external macroeconomic conditions. At the same time, further research is necessary for comprehensive analytical support of monetary policy decisions optimal exchange rate regime in the conditions of war and post-war recovery, monetary transmission and its evolutionespecially for a significant expansion of the structural surplus of liquidity.
In addition, the continued absence of a significant part of official statistics and the fundamentally uncertain environment for the formation of economic policy during the war calls for further research new data sources and their analysis. Understanding the depth of the economic downturn, as well as the dynamics of recovery, is important for the National Bank to make effective decisions and adapt policy measures.
In addition, it is proposed to investigate in the relevant direction:
- optimal balance between fiscal and monetary policy during the war;
- the impact of war on long-term trends and equilibrium states of key macroeconomic variables;
- parameters of the policy of inflation targeting in the period of post-war reconstruction;
- communication of the central bank in the conditions of war and its influence on the expectations of economic agents;
- the impact of the monetary policy of the leading central banks on the macroeconomic environment in Ukraine;
- effects of the introduction of digital money for monetary policy.
2) Ensuring financial stability during large and permanent shocks
The financial system adequately overcomes the challenges of a full-scale war. The banking system continues to function reliably and stably, and payments are made without interruption. At the same time, risks to the financial system due to the consequences of a full-scale war are expected to increase. An important task of the NBU in such conditions is monitoring of systemic risks and improvement of approaches to conducting macroprudential policyin order to respond to shocks effectively and in a timely manner.
In addition, given the uncertainty resulting from a full-scale war, the demand for credit resources decreased significantly, as did the willingness of banks to lend, given the significant credit risk. However, bank lending has the potential to play a significant role in post-war economic recovery. Therefore, for a better understanding of the impact of bank financing on the real economy, the central bank should investigate efficiency of credit channels. It is also important to analyze the relationship between the creation of a new loan and the accumulation of systemic risks and investigate impact of government credit support programs on economic recovery.
Along with analysis of macroprudential policy and credit activity of banks it is suggested to research in this direction the sensitivity of the financial system to cyber risks and climate change to avoid excessive shocks and preserve financial stability.
- Long-term challenges in the real sector of the economy after a long war
First, the focus of attention is on the NBU study of demographic processeswhich will significantly affect labor markets and productivity in the medium and long term. Assessment of the impact of demographic processes on the economic development of the country is necessary to be taken into account in macroeconomic forecasts for a timely and appropriate response from the side of economic policy.
Second, climate change creates new risks for the agricultural sector, and the transition to a “green” economy can lead to significant costs in energy-intensive industries. This must also be taken into account in economic policy and analyzed a set of tools aimed at minimizing the risk of climate change.
Thirdly, Ukraine needs to rebuild lost capacities, destroyed infrastructure and restore economic potential. The “build back better” principle that underlies today’s recovery strategies will require large-scale investment in industry and infrastructure with a clear focus on improving energy efficiency. Understanding evolution and growth factors of companies, market entry and exit together with implications for productivity and labor markets become relevant for distinguishing the factors causing short- and medium-term macroeconomic fluctuations.
- Development of digital markets, products and their regulation
Implementation of an effective digital financial ecosystem is a strategic opportunity for Ukraine. Simultaneously new technological innovations generate risks, in particular for monetary policy and macro-financial stability of the state. Therefore, in order to take advantage of the wave of innovation that has covered the payment and market infrastructure, and to ensure the accelerated development of digital financial markets of Ukraine without losing monetary sovereignty, it is necessary to find the balance between encouraging entrepreneurial innovation and ensuring robust regulatory requirements.
Financial intermediation, insurance, pensions and investment products, are certainly needed for the normal functioning of the economy, but their form and functioning largely rely on the interaction between the new international legislation and the capabilities of distributed ledger technologies. New research in this direction should provide an understanding of the common evolution of private goals and institutional requirements for the effective functioning of the financial market in Ukraine.
More detailed information about the updated research priorities of the National Bank until 2025 is posted by link.
For reference
The preliminary version of the research priorities of the National Bank of Ukraine until 2025 is available by linkand the priority areas of research for 2017–2020 are at this link.
