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The Impact of REER Volatility on Economic Activity in Ukraine

Author

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  • Bohdan Chepyha

    (National Bank of Ukraine
    Vasyl Stefanyk Carpathian National University)

Abstract

This study examines the nonlinear impact of the volatility of the real effective exchange rate (REER) on economic activity in Ukraine. In it, we use a threshold vector autoregression (TVAR) model for the period from June 2009 to December 2021. Our results indicate that there is a threshold for REER fluctuations of 1.8%. Below this threshold, volatility stimulates economic activity, but above 1.8% the effect is negative. This nonlinear effect is more noticeable for industries involved in foreign trade and with elastic demand for their own goods. Therefore, the National Bank of Ukraine should strive to keep REER volatility below 1.8% so that exchange rate fluctuations do not harm the economy.

Suggested Citation

  • Bohdan Chepyha, 2025. "The Impact of REER Volatility on Economic Activity in Ukraine," Visnyk of the National Bank of Ukraine, National Bank of Ukraine, issue 04, pages 1-21.
    • Handle: RePEc:ukb:journl:y:2025:i:04:p:1-21
    DOI: 10.26531/vnbu2025.op04
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    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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