Due to turmoil on Asian financial markets, a number of transition economies in Eastern Europe have recently encountered significant outflows of foreign capital. The panic among the Western portfolio investors threatens the stability of regional currencies and increases interest rates. Destabilization of the foreign exchange markets and high interest rates call into question the attainment of financial stabilization and decrease the probability of expected economic growth. The empirical part of this paper deals with estimation of long-run relationships between the money supply, the exchange rate and inflation. For this purpose, cointegration methods are employed, and a vector error correction model is constructed for the forecasting. Furthermore, the variance decomposition answers the question: how long does it take for shock in money supply or the exchange rate to be realized in the price level? Empirical findings provide a basis for policy implications to work out an anti-crisis program and appropriate exchange rate policy.
Ivaschenko Iryna: “Ukrainian Banking System Vulnerability: Sources and Solutions”
In the context of the possibility of a banking crises in Ukraine, this paper presents the analysis of the main sources of Ukrainian banking system vulnerability. The analysis reveals the great importance of the overall macroeconomic situation for the health of the banking sector. Both bank-specific issues and factors that determine overall fragility of the banking system are discussed. Some policy measures aimed at strengthening the soundness of the Ukrainian banking system are suggested: those feasible to implement in the short and in the longer run.
Khmurych Volodymyr: “Explaining Monetization with Reference to Transitional Economies”
This paper is an attempt to explain the drastic fall in monetization in transitional countries. The concept of monetization is defined, and the positive impact of monetization growth on the economy is shown. We also consider possible factors which may influence monetization with the statistical data provided to support the theoretical analysis. Finally, the theory of monetization is applied to the explanation of the arrears problem in Ukraine.
Kuzmyn (Dehtiarchuk) Marta: “Inflation in Ukraine”
The main objective of this paper is to define the main reasons for persistent inflation in Ukraine in 1992-1997. In this research I give a brief survey of the main theories that explain inflation and describe the inflation process in Ukraine since independence. By the statistical means, I determine the main factors that had an impact on inflation in Ukraine and then suggest some policies that could sustain the achieved stabilization. The main message of this work: it is a loose monetary policy that causes the price level to increase in Ukraine.
This paper tests a theory of patterns of portfolio equity investments against the empirical evidence of CEE/NIS emerging and frontier markets. The theory used is based on the model of Zhaohui Chen and Mohsin Khan that explains patterns of capital flow in terms of growth potential and financial market development. Low availability of data does not allow for an elaborate econometric test; instead a simple analysis of stylized facts is used. Though shown to be supportive for some hypotheses, the CEE/NIS empirical evidence does not yield conclusive results. Yet, the available evidence suggests that Ukraine’s pre-emerging market is currently at a quite fragile state, being vulnerable to drastic reversals of capital flows. Therefore, Ukrainian policy makers are advised to devote more efforts to local stock market development.
This paper examines the issue of market efficiency in Ukrainian privatization auctions, showing that these auctions are not efficient. There is persistent “overbidding” for objects that are underestimated by the state. A theoretical explanation for this result is offered.
The early stages of transition are more tolerable to radical changes than the mature period of economic development. It is reasonable for Ukraine on the early stages of market reforms to design fiscal policy in such a way that it is conducive for long-term economic growth and does not require substantial changes in the nearest future. This paper gives some current observations of fiscal policy in Ukraine and other transition economies and, drawing on existing theoretical and empirical studies, suggests some recommendations for designing new fiscal policy. First, a reduction in current expenditures on economy and an increase in capital expenditures (or at least fixing them on the same level as they were in CEE) are beneficial for growth. This proposition is supported by findings in the empirical section. Second, government should reorient capital expenditures from commercial projects to public infrastructure, where basic infrastructure such as transportation, communication and utilities should be a priority. Third, based on the observation that efficient recipients of capital government expenditures are crucial for successful fiscal policy, government should foster the development of the new private sector and clearly define the fate of all state-owned enterprises.
The paper discusses the challenges of social policy in Ukraine, in particular the costs of extensive social spending for productive sectors of the economy and for sustained growth in the long run. The paper also considers the distributional impact of social transfers policy, and the effectiveness of social spending in reducing inequality. The main findings of the paper are that the social transfers are highly regressively distributed. Most social support is going to the population in the top decile income groups. Among the examined transfers, family allowance and enterprises’ transfers are the most pro-rich distributed.
Yakubovich Viktoria: “Case Study of Professional Sound Equipment Industry in Ukraine”
This work is a study of sound equipment industry in Ukraine within the context of transition from a centrally planned to a market economy. It discusses structural changes which take place in this connection, possible sources of growth, and those factors that have a harmful effect on the development of the industry in particular and industrial sector in Ukraine as a whole. It also formulates some policy implications necessary to deal with existing problems and to promote future development.