INFLATION TARGETING: EVOLUTION OF DEVELOPMENT AND UKRAINIAN PRACTICE

Abstract

The article deals with the reasons for the transition of the countries of the world to the mode of inflation targeting (IT), among which is the lack of stability in the formation of the function of demand for money, deregulation of financial markets, the emergence of new types of assets, similar to money, reducing the role of the banking system in the field of financial intermediation, expansion of foreign economic relations
The study of the evolution and conditions of the use of this mode of monetary policy over the last three decades has shown that the flexibility of approaches in the practice of implementing IT can achieve positive effects that manifest in the consumer prices growth slowdown and volatility.
The emergence of more flexible approaches to the process of IT has become the main factor that led to the proliferation of this regime in countries with relatively poor financial markets. In the 1990-s inflation targeting was introduced in developed countries, then in the 2000-s this regime started to spread over developing countries with transforming economies. In general, IT is used more than in 36 countries around the world.
An analysis of the domestic practice of IT regime implementation has shown that inflation has significantly decreased right after the introduction of the regime, but in subsequent years this figure exceeded the established benchmarks. It is emphasized that the implementation of the IT regime in Ukraine faces certain difficulties that need to be addressed.
It is proposed that a inflation management should be aimed at a combination of policies (“policy mix”) - a combination of monetary and fiscal policies. In this context, the country's tariff policy, coordinated with the NBU’s actions, should be placed first in terms of inflation management. At the same time, the objectives of fiscal policy must take into account the guidelines of monetary policy. In particular, the state budget for the year and the mid-term period should be developed after the NBU assesses its inflation management capabilities and prepares forecasts of the monetary program. Regarding the monetary policy of the NBU, it should be taken into account that NBU is capable of regulating basic inflation, influencing the long-term dynamics of the price level, which does not depend on market conditions. Basic inflation can serve as a more reliable basis for developing future inflation forecasts and assessing the NBU’s inflation policy.