Mathematical modeling of influence of Ukraine’s external debt on standards of living

Abstract

Since the current state of the global financial system can be described as a crisis of excessive debt, Ukraine’s foreign debt is crucial for the present stage of stable development. Inefficient use of external borrowed funds results in a real loss of economic and political security of the state, particularly in a decline of living standards. The purpose of the article is to analyze Ukraine’s government-backed debt, subsistence minimum, minimum and averagewages, and to identify cause-effect relationships between the external debt, the cost of living, minimum and average wages using econometric models. The paper also analyzes dynamics of government-backed external debt and indicators of living standards in Ukraine over 1996- 2016 as well as interrelation between them. A number of trend models which show dynamics of Ukraine’s external debt, subsistence minimum, minimum and average wages are developed. These models are used to calculate their projected values. The authors have developed and justified economic and mathematical models of dependencies of subsistence minimum, minimum and average wages on the foreign state debt, and economic and mathematical models of dependencies of the government-backed external debt on subsistence minimum, minimum and average wages. It is noted that there is a strong dependency of subsistence minimum and minimum wage. Periods of dynamics of subsistence minimum, minimum and average wages, calculated in hryvnia and dollar equivalents, are defined. It is shown that the trends of the above-mentioned indicators have the same branches or periods. Moreover, it is proved that as compared with hryvnia, dollar plays a significant role in shaping indicators of living standards in Ukraine. Distributed lag models of dependencies of subsistence minimum, minimum and average wages on the foreign debt are calculated. The models show that the main impact of the government-backed external debt on subsistence minimum and minimum wage is four years overdue. The models with instrumental variables of direct and inverse dependencies of the external debt on subsistence minimum and of subsistence minimum on the external debt are developed and justified. These models are used to forecast the researched indicators.