Channels of the transmission mechanism and their impact on maintaining financial stability and economic growth

Omelenchuk Volodymyr
PhD student of Banking Department, State University of Trade and Economics, Kyiv, Ukraine, E-mail:vova.omelenchuk@gmail.com, ORCID ID: https://orcid.org/0000-0001-5188-7658

Cite this article:

Omelenchuk V., (2024) Channels of the transmission mechanism and their impact on maintaining financial stability and economic growth. Ed.: V.V. Kovalenko (ed.-in-ch.) and others [Kanaly transmisijnogo mehanizmu ta ih vplyv na pidtrymku finansovoi stabilnosti ta ekonomichnogo zrostannja; za red.: V.V. Kovalenko (gol. red.)], Scientific Bulletin of the Odesa National Economic University (ISSN 2313-4569), Odesa National Economics University, Odesa, No. 9 (322), pp. 37-46.

Abstract

This paper examines how the National Bank of Ukraine determines the use of monetary instruments by analyzing the broader economic environment. The study explores the interrelationships between various macroeconomic indicators, such as inflation, exchange rates, and industrial development, and their impact on the central bank’s decisions through the interest rate channel. In addition, the paper considers other channels of the transmission mechanism, including their descriptions, the nature of their impact, and the strategic goals achieved by the regulator through their use. The analysis highlights the importance of prudent monetary policy to maintain the stability of the banking sector, especially during periods of economic uncertainty. It provides an in-depth look at how the NBU uses a range of monetary policy tools –such as the key policy rate, required reserve ratios, and open market operations – to indirectly influence factors that contribute to achieving its strategic objectives. The key policy rate, in particular, is identified as a significant lever for regulating borrowing costs, impacting lending rates, bank profitability, and loan demand. Changes in reserve ratios affect liquidity, while open market operations play a crucial role in managing reserves and short-term interest rates. Furthermore, the study emphasizes the critical role of monetary transmission channels – interest rate, credit, asset value, and expectations – in ensuring the stability of Ukraine’s banking sector. Empirical evidence suggests that these channels influence banks’ profitability, liquidity management, lending activity, and market behavior, which are essential for maintaining financial stability. This paper aims to offer a comprehensive understanding of the NBU’s monetary strategy and its impact on Ukraine’s financial stability.

Keywords

monetary policy, discount rate, economic stability, banking sector.

JEL classification:E580; DOI: https://doi.org/10.32680/2409-9260-2024-9-322-37-46

UD classification: 336.71:330.101.54

References

1. Khokhych, D., Tkachenko, O., &Svystun, A. (2024). Ukraine’s Monetary Policy Under Martial Law. Baltic Journal of Economic Studies, 10 (2), 282-289. Retrieved from: https://doi.org/10.30525/2256-0742/2024-10-2-282-289 (accessed 9 September 2024).
2. Baranovskyi, O. I., Kuzheliev, M. O., Zherlitsyn, D. M., Sokyrko, O. S., & Nechyporenko, A. V. (2019). Econometric Models of Monetary Policy Effectiveness in Ukraine. Financial and Credit Activity Problems of Theory and Practice, 3 (20), 226-235. Retrieved from: https://fkd.net.ua/index.php/fkd/article/ view/1951 (accessed 9 September 2024).
3. Heyets, V. (2020). The Phenomenon of Instability as a Challenge to Economic Development. Kyiv: Akademperiodyka. DOI: https://doi.org/10.15407/akademperiodyka.403.456 (accessed 9 September 2024). [Іn Ukrainian].
4. Dziubliuk, O. V. (2018). Exchange Rate Policy as a Key Factor of Macroeconomic Stabilization. TNEU. Retrieved from: http://dspace.wunu.edu.ua/handle/316497/28311 (accessed 9 September 2024) [Іn Ukrainian].
5. Iefymenko, T. (2018). Monetary Tools of State Economic Security. Finansy Ukrayiny, 1, 7-30. DOI: https://doi.org/10.33763/finukr2018.01.007. (accessed 9 September 2024) [Іn Ukrainian].
6. Naumenkova, S., Mishchenko, S., & Mishchenko, V. (2022). The Efficiency of the Monetary Channel of the Monetary Transmission in Ukraine. Ekonomichnyy prostir, 179, 108-115 DOI: https://doi.org/10.32782/2224-6282/179-16 (accessed 9 September 2024) [Іn Ukrainian].
7. Bianco, A., & Sardoni, C. (2018). Banking theories and macroeconomics. Journal of Post Keynesian Economics, 41(2), 165-184. DOI: https://doi.org/10.1080/01603477.2017.1408418 (accessed 9 September 2024).
8. Wulandari, Y., & Kusairi, S. (2017). The impact of macroeconomic and internal factors on banking distress. International Journal of Economics and Financial, 7(3), 429-436. DOI: https://dergipark.org.tr/en/pub/ijefi/issue/ 32021/354272 (accessed 9 September 2024).
9. Shirakawa, M. (2012). Sustainability of government debt: preconditions for stability in the financial system and prices. Financial Stability Review, 16, 169-181. Retrieved from: https://abc-economie.banque-france.fr/sites/default/files/medias/documents/financial-stability-review-16_2012-04.pdf#page=169 (accessed 9 September 2024).
10. Dziubliuk, O. (2023). Features of the transmission mechanism of monetary policy in Ukraine under martial law. Ekonomichnyy analiz, 33, 3, 247-256. Retrieved from: http://dspace.wunu.edu.ua/handle/316497/48902 (accessed 9 September 2024) [Іn Ukrainian].
11. National Bank of Ukraine. Official website. Retrieved from: https://bank.gov.ua/ua/stability/npl#1243-za-obsyagom-kredytnogo-portfelya (accessed 21.08.2024). [Іn Ukrainian].
12. National Bank of Ukraine. Supervisory statistics. Official website. Retrieved from: https://bank.gov.ua/ua/statistic (accessed 21.08.2024). [Іn Ukrainian].