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Liburkina L. M.

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Causes of Vulnerability and Resilience of the Conventional Monetary Regime – Flexible Inflation Targeting
Krychevska T. O.

Krychevska, Tetiana O. (2019) “Causes of Vulnerability and Resilience of the Conventional Monetary Regime – Flexible Inflation Targeting.” Business Inform 11:67–76.
https://doi.org/10.32983/2222-4459-2019-11-67-76

Section: Mechanisms of Regulation of the Economy

Article is written in Ukrainian
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UDC 336.748.12

Abstract:
The article is aimed at identifying the challenges that the convention monetary regime - flexible inflation targeting - faces today: both technically (in terms of applying the reaction function in the form of a variety of Taylor’s rule) and as an element of public treaty, and the next: why it is still positioned as a kind of «end of history» in monetary policy. The following technical conditions for the efficiency of flexible inflation targeting are allocated: relevance of inflation as a key indicator of cyclical dynamics; availability, focus and density of the link between inflation and business activity; adequacy of estimates of normal macro-economic indicators. The extent these conditions are implemented at in the present stage, is considered. It is shown that in the conditions of financialization, as opposed to inflation, the indicators of status of the financial market become significant indicators of the economic cycle, and inflation itself after gaining confidence in the national anti-inflationary policy in many countries is largely defined by the debt cycles, global factors, prolonged slowdown in economic growth, and decline in the equilibrium real rates of interest. It is identified that the modification of Phillips curves can be caused by: the validity of Goodhart’s law; changing the nature of labor market in developed economies; increasing the impact of global factors on the internal inflation and their ambiguity; technological factors. Several contradictions of the inflation targeting as an element of a social contract are disclosed - the price stability as both a universal and group benefit, as well as a semblance of simplicity and transparency of this monetary regime. The following factors of resilience of inflation targeting as a convention monetary regime are formulated: value of its achievements in stabilizing the inflation expectations; latitude, flexibility, complexity and non-specificity; variability and ambiguity of the structural changes themselves that undermine its efficiency; incorporation not only into national social treaties, but also in the international agreement concluded after the collapse of the Bretton Woods currency system.

Keywords: conventional monetary regime, flexible inflation targeting, trust, Taylor’s rule, social contract, Phillips curve, debt of institutional sectors, global inflation factors.

Fig.: 3. Formulae: 1. Bibl.: 23.

Krychevska Tetiana O. – Candidate of Sciences (Economics), Senior Research Fellow, Senior Research Fellow, Department of Economic Theory, Institute for Economics and Forecasting of NAS of Ukraine (26 Panasa Myrnoho Str., Kyiv, 01011, Ukraine)
Email: [email protected]

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