Modeling the influence of monetary factors on the development of national production

Abstract

The article is devoted to defining the influence of monetary policy on the development of national production and substantiating the prospects for its monetary regulation. It has been established that in recent years the monetary policy of Ukraine has been unfavourable for the industrial development in Ukraine. The NBU, which adheres to the monetary regime of inflation targeting, pursues a relatively strict policy, in particular, maintaining the real key rate at a level above neutral and low growth rates of the real money supply. As a result, for many years the national industry has been operating in conditions of a chronic shortage of working capital and investments, which exacerbates the problems of its development. To establish the nature and strength of the influence of monetary factors on long-term economic growth in Ukraine, a new economic and mathematical model based on production functions has been developed. Its parameterization showed that national output directly depends on the increase in invested labour, and vice versa – on the increase in Hryvnia exchange rate to U.S. Dollar (discourages exports) and U.S. Dollar Index (worsens the foreign economic situation). The impact on the increase in the real money supply can also have a positive impact on the economy, but its strength depends on the growth rate of broad money (with controlled inflation). At moderate rates, typical for the basic scenario of long-term development of the Ukrainian economy, investments are not increasing as vigorously as it is necessary for accelerated growth of real GDP and incomes of citizens. An increase in the growth rate of the real money supply (up to about 15% per year), set forth in the accelerated development scenario, can provide better results. It is proved that despite the importance of monetary variables, the key factors influencing the links in the chain "real money supply – investment – industrial growth" should be sought outside the monetary sphere proper. Stable expansion of the monetary base and growth of the real money supply do matter, but they are not able to solve the fundamental problems of modernization of economic institutions, structural restructuring of the economy and overcoming technological gaps with industrialized countries. It follows from this that in Ukrainian economy in the long run it is important for the regulator to maintain stable growth of the real money supply and controlled inflation, but this will be of fundamental importance for solving the accumulated problems only if the policies of the regulator and the government are coordinated, which should create favourable conditions and form appropriate institutions to reduce the dependence of the economy on raw material exports, accelerate national technical and technological development and increase its overall level.