Optimal Monetary Policy Framework in an Emerging Market Economy under Sanctions Pressure and Restrictions on Capital Flows

Central European Economic Journal

Volume 11 (2024): Issue 58 (January 2024)

By:

Anatoly Kharitonchik

Open Access

|Sep 2024

Figures & Tables

Reaction of macroeconomic indicators to the shock of deterioration in domestic economic conditions: Baseline model specificationSource: author’s calculationsNote: Here and further, the figure shows impulse response functions in the form of deviations of variables from sustainable equilibrium levels

Reaction of macroeconomic indicators to the shock of deterioration in domestic economic conditions: Strict restrictions on capital flowsSource: author’s calculations.

Reaction of macroeconomic indicators to the shock of worsening external economic conditions: Baseline model specificationSource: author’s calculations

Reaction of macroeconomic indicators to the shock of worsening external economic conditions: Strict restrictions on capital flowsSource: author’s calculations

Values of key model parameters

Parameter	Value	Parameter	Value
Output gap		Core inflation
a₁	0.55	b₁	0.35
a₂	0.05	b₂	0.09
a₃	0.20	b₃	0.20
a₄	0.35	Real marginal costs
a₅	0.10	k₁	0.45
a₆	0.15	k₂	0.25
Wages		Non-core inflation
aa₁	0.55	bb₁	0.60
aa₂	0.40	bb₂	0.05
aa₃	0.25	bb₃	0.10
Exports		Imports
c₁	0.45	d₁	0.40
c₂	0.45	d₂	1.00
c₃	0.25	d₃	0.10
Exchange rate		Monetary policy reaction function
h₁	0.30	mm₁	0.60
h₂	0.90	mm₂	0.55
Monetary conditions		mm₃	0.30
m₁	0.50
m₂	0.15
m₃	0.35

Simulation results of a scenario of worsening external economic conditions: Baseline model specification

Indicator	Monetary policy regime
Indicator	FIT	AIT (2Y)	AIT (3Y)	PLT	MT
σ(ŷ)	0.4	0.4	0.5	0.4	0.4
σ(π⁴)	2.1	2.3	2.5	1.9	1.1
σ(p)	4.4	4.8	5.1	3.5	1.5
σ(∆i)	0.7	0.6	0.6	0.7	1.7
L(γ=0.25)	12.3	14.2	16.2	8.0	2.6
L(γ=0.50)	12.5	14.3	16.3	8.1	3.3
L(γ=0.75)	12.6	14.4	16.4	8.3	4.1

Simulation results of a scenario of worsening domestic economic conditions: Baseline model specification

Indicator	Monetary policy regime
Indicator	FIT	AIT (2Y)	AIT (3Y)	PLT	MT
σ(ŷ)	2.8	2.9	2.8	3.2	3.5
σ(π⁴)	5.0	5.1	5.2	5.3	4.4
σ(p)	8.5	7.7	8.1	6.5	5.3
σ(∆i)	1.2	0.8	0.7	1.1	12.1
L(γ=0.25)	52.8	47.5	50.8	40.7	66.3
L(γ=0.50)	53.2	47.7	50.9	41.0	103.0
L(γ=0.75)	53.6	47.8	51.1	41.3	139.7

Simulation results of a scenario of worsening external economic conditions: Strict restrictions on capital flows

Indicator	Monetary policy regime
Indicator	FIT	AIT (2Y)	AIT (3Y)	PLT	MT
σ(ŷ)	0.3	0.3	0.3	0.3	0.4
σ(π⁴)	1.2	1.3	1.3	1.1	1.2
σ(p)	2.4	2.6	2.8	1.9	1.1
σ(∆i)	0.4	0.3	0.3	0.4	2.1
L(γ=0.25)	3.7	4.3	4.8	2.4	2.6
L(γ=0.50)	3.7	4.3	4.9	2.5	3.7
L(γ=0.75)	3.8	4.3	4.9	2.5	4.8

Simulation results of a scenario of worsening domestic economic conditions: Strict restrictions on capital flows

Indicator	Monetary policy regime
Indicator	FIT	AIT (2Y)	AIT (3Y)	PLT	MT
σ(ŷ)	2.9	3.1	3.1	3.2	3.3
σ(π⁴)	5.2	6.0	5.9	6.3	5.7
σ(p)	6.0	5.7	5.8	5.6	4.7
σ(∆i)	1.3	1.1	1.0	1.4	13.9
L(γ=0.25)	35.9	39.3	39.5	41.3	80.6
L(γ=0.50)	36.3	39.6	39.7	41.8	128.8
L(γ=0.75)	36.8	40.0	40.0	42.3	177.0

Efficiency of monetary policy regimes in an unconditional simulation experiment: Baseline model specification

Indicator	Monetary policy regime
Indicator	FIT	AIT (2Y)	AIT (3Y)	PLT	MT
(γ=0.25)	2.3	3.6	4.7	1.6	2.8
L(γ=0.50)	2.1	3.4	4.5	1.5	3.5
L(γ=0.75)	2.1	3.4	4.2	1.5	3.8

Efficiency of monetary policy regimes in an unconditional simulation experiment: Strict restrictions on capital flows

Indicator	Monetary policy regime
Indicator	FIT	AIT (2Y)	AIT (3Y)	PLT	MT
(γ=0.25)	2.7	3.9	4.9	1.7	1.8
L(γ=0.50)	2.4	3.7	4.7	1.6	2.6
L(γ=0.75)	2.3	3.6	4.5	1.5	3.1

DOI: https://doi.org/10.2478/ceej-2024-0022 | Journal eISSN: 2543-6821 | Journal ISSN: 2544-9001

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Language: English

Page range: 329 - 345

Published on: Sep 20, 2024

Published by: Sciendo

In partnership with: Paradigm Publishing Services

Publication frequency: 1 times per year

Keywords:

Related subjects:

Business and economics,

Political economics,

Economic theory, systems and structures,

Microeconomics,

Macroeconomics,

Economic policy

© 2024 Anatoly Kharitonchik, published by Sciendo
This work is licensed under the Creative Commons Attribution 4.0 License.

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Optimal Monetary Policy Framework in an Emerging Market Economy under Sanctions Pressure and Restrictions on Capital Flows

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