Authors: Kateryna Savolchuk, Anton Grui (National Bank of Ukraine).
Abstract: In this paper, authors introduce endogenous monetary policy credibility into a semi-structural New Keynesian model. The model is estimated based on data for Ukraine, which de facto adopted inflation-targeting at the end of 2015. Authors model credibility as a nonlinear function of two gaps – actual and expected deviations of inflation from its target. Credibility is asymmetric as above-target inflation reduces it more than below-target. Authors show how low policy credibility can make economic stabilization more costly, and expansionary policy – counterproductive. It can also generate the price puzzle. Furthermore, we estimate the historical path of monetary policy credibility in Ukraine.
Cite as: Savolchuk, K., Grui, A. (2022). Endogenous monetary policy credibility in Ukraine. NBU Working Papers, 2/2022. Kyiv: National Bank of Ukraine. Retrieved from https://bank.gov.ua/admin_uploads/article/WP_2022-02_Savolchuk_Grui_eng.pdf.