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Inflation Targeting Model in Macroeconomics.
T I Iefymenko1, B B Dunaev1, A A Lyubich1
1Academy of Financial Management, Kyiv, Ukraine.
Cybernetics and Systems Analysis
|December 1, 2021
Summary
Lowering inflation to a marginal level boosts real GDP growth, while higher inflation hinders it. This study develops an inflation targeting model for Ukraine
Area of Science:
- Economics
- Macroeconomics
- Monetary Policy
Background:
- Economic growth is influenced by inflation levels.
- Previous models have not fully captured the nuanced relationship between inflation and real GDP.
- Ukraine's economy experienced a recession in 2020 due to the coronavirus pandemic.
Purpose of the Study:
- To empirically investigate the impact of inflation targeting on real GDP growth.
- To develop a model for economic regulation through inflation targeting.
- To determine optimal inflation targets for Ukraine's economic recovery.
Main Methods:
- Empirical analysis of inflation's effect on real GDP.
- Development of a mathematical function for inflation determination.
- Economic modeling using historical statistical data and nomograms.
- Inflation targeting model applied to Ukraine's economy.
Main Results:
- Lowering inflation to a marginal level that avoids deflation and depression increases real GDP growth.
- Increasing inflation above this marginal level reduces real GDP growth.
- A four percent inflation target was modeled for Ukraine's economic growth in 2021-2023.
Conclusions:
- Inflation targeting is a viable strategy for economic regulation and growth.
- The developed model provides a framework for the Central Bank of Ukraine to set target indicators.
- Strategic inflation management is crucial for post-recession economic recovery.
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