1. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 1 A. Zabirnik Advisors: V. Polterovich V. Popov A. Tonis Moscow, 2007 Policy and instruments of the National Bank of Ukraine in years 2001–2006

2. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 2 Contents Literature overview  That has been done for other countries, but not for Ukraine Stated targets and instruments  What do NBU officials state Real targets and instruments  Response functions  GMM estimates  Does Real coincide Stated?

3. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 3 Literature overview  Taylor, Discretion versus Policy Rules in Practice, 1993, Carnegie–Rochester Conference series on Public Policy 39, 195–214. McCallum, Issues in the Design of Monetary Policy Rules, 1997, NBER WP 6016. Ball, Policy rules for open economies, in: Taylor, ed., Monetary policy rules, 1999, The University of Chicago Press and NBER Business Cycles Series, Volume 31. Clarida, Gali, Gertler, Monetary policy rules and macroeconomic stability: Evidence and some theory, 2000, Quarterly Journal of Economics 155 (1), 147–180, and NBER WP 6442. Hristov, Investigating the Effects of Monetary Policy in Post-Transition Economies: The Czech Republic and Poland.  Вдовиченко, Воронина, Правила денежно-кредитной политики Банка России. Москва: EERC, 2004. Svensson, Inflation Targeting, The New Palgrave Dictionary of Economics, II edition, 2006. Svensson, Independent Review of the Operation of Monetary Policy in New Zealand: Report to the Minister of Finance, 2001.

4. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 4 My contribution No such research for Ukraine yet I answer the following questions:  What are targets and instruments of the policy of the NBU  stated  real  Do they coincide

5. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 5 My results Real targets  unemployment  low Real instruments  monetary base  money M2  interest rate Stated targets  inflation (CPI)  low  nominal exchange rate  stable Stated instruments  monetary base  FOREX interventions  Government bonds interventions  interest rate

6. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 6 Stated targets Inflation (low)  under the constitution of Ukraine  more than half of the targets discussion in “Main regulations for monetary policy” is devoted to inflation Nominal exchange rate (stable)  under the constitution of Ukraine  has been fixed since 2005  before that was highly discussed

7. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 7 Nominal exchange rate

8. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 8 Inflation

9. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 9 Stated instruments Reserve requirements  more than one thirds of the instruments discussion in “Main regulations for monetary policy” is devoted to interest rate Interest rate  more than half of the instruments discussion in “Main regulations for monetary policy” is devoted to interest rate Monetary base / money M2  also significant amount of the discussion is devoted to monetary base/money M2

10. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 10 Response function Optimal instrument  Smoothed change  Equation to estimate 

11. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 11 Targets and instruments Targets (d) Inflation GDP Reserves Unemployment Instruments (b) Interest rate ΔMB ΔM2 ΔReserves Reserve requirements

12. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 12 GMM estimates (monthly data) TargetCPIUnemployment InstrumentΔM2ΔMBΔM2interest k 11,2,5,6,7,…15,6,7,... ρ 1.388***1.302***1.485***0.128*** α 0.067***–0.035*0.01315.732*** β 0.005***7E–05***2E–05**–0.008** * Significant at 10% significance level ** Significant at 5% significance level *** Significant at 1% significance level

13. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 13 Conclusion Stated and real targets  Stated: inflation, nominal exchange rate  Real: unemployment Stated and real instruments  No significant differences

14. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 14 Further research Test the result for robustness Why the main target of the NBU appears to be unemployment? Evaluate the policy of the NBU and give some recommendations

15. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 15 The end Thank you Questions

16. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 16 Data: monetary base

17. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 17 Data: nominal exchange rate

18. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 18 Data: CPI (monthly)

19. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 19 Data: discount rate

20. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 20 Data: reserves

21. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 21 Data: budget deficit

22. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 22 Data: multiplier

23. Policy and instruments of the National Bank of Ukraine in years 2001–2006. A. Zabirnik. NES, 2007. 23 Data: unemployment