Assessment of inflation expectations in the financial market of Ukraine

Abstract

Background. The inflation surge of 2014–2015’s., the absence of preconditions for the transition to inflation targeting regime declared by the National Bank of Ukraine and uncertainty of the monetary policy of NBU raise questions about the complexity of prediction of the dynamics of consumer prices and corresponding impact on them by monetary instruments. In turn, unstable inflation environment is reflected on the deterioration of macroeconomic conditions for economic entities and the possibilities of their long-term investment implementation. Eventually, it requires more fundamental approaches to the formation of the projection system, which would consider a wider range of factors of impact on inflation.
The analysis of recent researches and publications. The group of domestic and foreign scientists, namely B. Karpinskyi, O. Pyzh, K. Kirieyeva, V. Shevchuk, A. Estrella, F. Mishkin, Zh. Faus, P. Milonas and others dealt with the problems of detection of indicators of formation of inflation expectations on financial markets.
The aim of the research is determination of the indicators of formation of inflation expectations on the financial market of Ukraine.
Materials and methods. Legislative and normative acts on regulation of banking institutions activity, reference and analytical materials of National Bank of Ukraine, information materials of leading central banks of the world, research materials of the OECD, the IMF and others became the information basis. Systematic approaches to the study of economic phenomena on financial markets of Ukraine and the world, economic and mathematical modeling with the use of statistical data of the NBU and Ukraine State Statistics and statistical comparison of factual basis became the methods of the research.
Results. Traditional approach to forecast of inflation, which is used by central banks, focuses on the implementation of forecasts based on separate monetary aggregates, as well as on the consideration of the long-term trends, including deviation of actual from potential amount of nominal GDP, real business cycles and expectations of economic entities.
In the article the author considers the issue of inflation forecast, deviations of its actual values from the predicted level and adjustment factors of such forecasts; analyzes the impact of spreads for government bonds and market credit rates, redemption of government bonds in the portfolio of the central bank and the yield curve on core inflation; explores the impact of exchange rate volatility on inflation; offers the ways of consideration of inflation risks in the expectations of the financial market subjects.
Conclusion. On the basis of the conducted research the author offers the use of spreads in yield on the financial market as an additional factor for adjustment of the inflation forecast. The author offers determination of its level through core consumer price index, which is mainly influenced by internal factors. Also, he considers appropriate the introduction and proper application of composite index of hryvnias corporate bonds for determination of spreads and the expected risk premium for the consideration of the risks and the corresponding expectations of the corporate bonds market. In further researches he suggests the determination of the risk premium by the decomposition of total risk on market factors (credit risk of the borrower, date, volume) and the implicit inflation expectations (expressed in terms of spreads) with an aim of timely respond to the accumulation of problem debt of bank borrowers and its negative effects. Taking into account the need to consider the negative effects of exchange rate shocks in inflation dynamics, he offers a partial targeting of the exchange rate volatility, determination of the maximum acceptable ranges of exchange rate fluctuations (in standard deviations) and their appropriate adjustment depending on the periods and the state of supply of liquidity on the financial market.