№ 2020/1
MacroeconomicsHRYTSENKO Andrii 1, BANDURA Oleksandr 2
1Institute for Economics and Forecasting, NAS of Ukraine
2Institute for Economics and Forecasting, NAS of Ukraine
Features and factors of contemporary inflation dynamics
ABSTRACT ▼
The article considers the features of contemporary inflation, which are difficult to explain within the framework of well-known theories. We used the authors’ CMI-model of economic cycles to explain the phenomena of low inflation in the US economy and relatively low economic growth under the record high employment during 2008-2019. In this model, the aggregate money supply M2 is divided in two parts: 1) neutral (that does not affect the growth rate) and 2) non-neutral (that affects the growth rate). We proved empirically that the implementation of the "quantitative easing" monetary policy through the financial markets (to reduce the short- and long-term interest rates) has little effect on the economic growth rate, but mainly causes the growth of the stock markets, which absorb neutral money supply, holding back the inflation process. However, this policy may cause a financial bubble in the stock markets and increases the probability of a significant correction in the value of financial assets in the case of a new recession. We evaluated the outlooks of the beginning of a new recession in the US economy that can cause a new recession in Ukrainian economy as well. The positive effect from the “quantitative easing” monetary policy is a record duration (for the entire history of observations) of the US recovery that contributed to the record low unemployment. The negative effects of this policy include the least (for the last 50 years) average economic growth rates during the recovery and relatively low level of labor productivity since 2010. At the same time, the existence of developed financial markets and stimuli for investments in financial assets may serve as an effective instrument to hold back the inflation. Therefore, any contributing from all regulators in development of financial markets would be also useful for Ukraine.
Keywords:inflation, business cycle, financial market, monetary policy, (non)neutral money, recession, growth rate, financial index.
JEL: E30, E31, E32, E37
| Article in English (pp. 77 - 93) |
| Article in Russian (pp. 77 - 93) | Download | Downloads :284 |
| Article in Ukrainian (pp. 77 - 93) | Download | Downloads :260 |
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