OPTIMIZING MONETARY REGIME IN THE INTERESTS OF ENSURING ECONOMIC WELFARE
Abstract
The rationale for expanding the mandate of central banks stems from the necessity of integrating socio-economic indicators into the decision-making process, as the effectiveness of optimal monetary policy depends on considering a broader spectrum of macroeconomic factors, particularly employment support and financial stability. Monetary policy should adapt to shifting priorities driven by global trade and domestic economic challenges. Incorporating labor market structure and income inequality indicators should constitute essential elements of a monetary policy strategy. Maintaining labor market balance by reducing the vacancy-to-unemployment ratio has been recognized as a pivotal factor for achieving inflation targets. Expanding access to financial services enables central banks to shift from solely controlling inflation to also stabilizing production volumes. The risk of losing public trust as a result of extending central banks' mandates has been highlighted. It has been generalized that inflation targeting aims to maintain the inflation rate within a specified target range, while price level targeting requires correcting past deviations to ensure alignment with a long-term price trajectory. Nominal GDP level targeting seeks to stabilize the nominal GDP level through mandatory adjustments for past deviations, whereas its variant, nominal GDP growth targeting, aims at a specified growth rate of nominal GDP within the current period, disregarding previous deviations. Prospective nominal GDP level targeting proves valuable by integrating both production and employment indicators, thus offering a comprehensive economic performance evaluation. However, its implementation poses risks, including the complexity of measurement due to frequent statistical revisions and the potential loss of control over inflation expectations. A proposed policy measure involves utilizing monthly estimates of household final consumption expenditures, derived from an improved methodology, as a proxy indicator for nominal GDP to enhance the socio-economic orientation of monetary policy in Ukraine.
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