DETERMINING THE RELATION BETWEEN THE STATE OF FINANCIAL INTERMEDIARIES AND ECONOMIC GROWTH IN UKRAINE USING VAR MODEL

Abstract

The article is devoted to determining the relation between the state of banks and non-bank financial intermediaries and economic growth in Ukraine using vector autoregression (VAR) model. We start by analyzing the allocation of financial resources between banks and non-bank financial intermediaries in Ukrainian financial system. Then we build a model, which takes into account quarterly real GDP growth as a measure of economic growth, weighted average interest rates on new loans to residents, quarterly growth of net assets of commercial banks and quarterly growth of assets of non-bank financial intermediaries for the period from the second quarter of 2012 to the second quarter of 2020. The model was also used to forecast the dynamics of stated indicators for the next ten quarters. To determine the impact of changes in the parameters of the model on one standard deviation on GDP growth we construct impulse response functions and to find out how strongly an external shock on some parameters of the model will affect other parameters we build forecast error variance decomposition. It was found that there is higher correlation between assets of non-bank financial intermediaries and GDP, than between GDP and assets of banks. Therefore, the state of non-bank financial intermediaries better reflects the real state of the economy in the country. It is proposed to take this pattern into account by the subjects of state financial monitoring in order to improve the domestic system of prevention and counteraction to legalization (laundering) of the proceeds of crime. For example, statistically significant deviations of the growth rates of assets of non-bank financial intermediaries from the growth rates of real GDP can be interpreted as a sign of the institution’s connection with illegal financial transactions, in particular legalization (laundering) of proceeds of crime, and therefore can be used in the initial stages of detection of illegal financial transactions while screening non-bank sector in order to find sings of such transactions. Keywords: financial intermediaries, banks, non-bank financial institutions, vector autoregression, economic growth.