In 2022, russia’s full-scale invasion and higher global risks increased uncertainty, making it more difficult for the NBU to implement its mandate to safeguard price and financial stability, and to support sustainable economic growth. This has noticeably expanded the list of topics on which the NBU’s research focuses.
Therefore, the NBU has revised its research priorities until 2025. The relevant areas will be analyzed by the central bank’s experts. In addition, the NBU encourages external contributors in researching certain topics in order to deepen scientific discussions and to study, from a range of perspectives, topics that are important for maintaining macrofinancial stability and reviving the Ukrainian economy.
The revised list of research priorities includes:
Monetary policy in wartime and during post-war economic recovery
Faced with challenges posed by the full-scale invasion, the NBU temporarily departed from its regular inflation targeting regime by fixing the official UAH/USD exchange rate and by imposing administrative restrictions on FX transactions and cross-border capital movements. At the same time, in June 2022 the NBU returned to an active interest rate policy to maintain a stable exchange rate, control price movements, and to protect households’ hryvnia income and savings from being eroded away by inflation. What is more, in H2 2022 and in early 2023, the NBU deployed additional monetary tools through, among other things, raising reserve requirements for banks, with a view to enhancing the effectiveness of the monetary transmission mechanism amid a structural liquidity surplus in the banking system.
When making these decisions, the NBU was guided by a detailed analysis of international best practices, as well as by domestic and global macroeconomic conditions. That said, securing broad analytical support for future monetary policy decisions requires discovering what the optimum exchange rate regime in wartime and during post-war recovery would be, as well as studying monetary transmission and its evolution, especially under conditions of a significant widening in the structural liquidity surplus.
Furthermore, the protracted absence of a significant share of official statistics and the fundamentally uncertain environment for designing economic policy during wartime requires further research into new sources of data and their analysis. Understanding the depth of the economic downturn and the pace of recovery is important for the NBU to be able to make effective decisions, and to tailor policy measures.
Apart from this, this area of research will focus on:
- the optimal balance between fiscal and monetary policies in wartime
- the impact of the war on long-term trends and on the ability of key macroeconomic indicators to maintain equilibrium
- the parameters of inflation targeting policy during post-war recovery
- the central bank’s communications in wartime and the impact of these communications on economic agents’ expectations
- the influence of the monetary policies conducted by leading central banks on Ukraine’s macroeconomic environment
- the effects the introduction of digital money could have on monetary policy.
Safeguarding financial stability in the face of large and persistent shocks
The financial system is coping effectively with the challenges posed by the full-scale war. The banking system continues to function reliably and stably, while payments are made without delay. That said, risks to the financial system have increased because of the full-scale war. Under such conditions an important task for the NBU is to monitor systemic risks and to improve approaches to conducting macroprudential policy in order to be able to respond to shocks effectively and in a timely manner.
In addition, uncertainty resulting from the full-scale invasion has significantly decreased both demand for loans and the banks’ willingness to issue loans because of high credit risks. However, lending by banks has the potential to play a significant role in the post-war economic recovery. Therefore, the central bank needs to study the effectiveness of credit channels to boost its understanding of how bank financing effects the real economy. It is also important to analyze the relationship between the issuance of new loans and the build-up of systemic risks, and to study the impact of government loan support programs on economic recovery.
Along with analyzing macroprudential policy and the banks’ lending activity, this research area will also address the vulnerability of the financial system to cyber risks and climate change, with a view to avoiding undue shocks and maintaining financial stability.
Long-term challenges for the real economy after a protracted war
First, demographics processes, which will have a strong effect on labor markets and productivity in the mid- and long-term, are under the NBU’s research focus. Macroeconomic forecasts should factor in the estimated impact of demographic processes on the country’s economic development to enable economic policy to respond in a timely and appropriate manner.
Second, climate change poses new risks for the agricultural sector, while a transition to the "green" economy could generate considerable losses for energy-intensive industries. Policy makers should also account for this when designing economic policy, while also analyzing a toolkit for minimizing climate change risks.
Third, Ukraine needs to rebuild its lost production facilities and destroyed infrastructure, and to recover its economic potential. The principle of "build back better," which underlies modern recovery strategies, will require sizeable investment in the industrial sector and infrastructure, with a clear aim of enhancing energy efficiency. Understanding firms’ evolution and drivers of growth, their entry and exit decisions, as well as effects on productivity and labor markets, are becoming important for discriminating between factors that cause short- and medium-term macroeconomic fluctuations.
The development of digital markets and products, and their regulation
Embracing a resilient digital financial ecosystem is a strategic imperative for Ukraine. At the same time, technological innovations generate risks, such as risks to monetary policy and the country’s macrofinancial sustainability. Therefore, reaping the benefits of the innovation wave sweeping across payment and market infrastructure and enabling the rapid development of Ukrainian digital financial markets without losing monetary sovereignty requires striking a balance between encouraging entrepreneurial innovation and laying down reliable regulatory requirements.
Financial intermediation, insurance, pensions and investment products are undoubtedly needed to ensure the proper operation of the economy, but their form and functioning are largely based on the interaction between new international legislation and the capabilities of distributed ledger technologies. New studies in this area should provide an understanding of the joint evolution of private goals and institutional requirements in order to ensure the effective functioning of the Ukrainian financial market.
More detailed information about the NBU’s revised research priorities until 2025 is available at this link.