Author
Listed:
- Etienne Farvaque
(University of Lille, CNRS, IESEG School of Management, Lille; CIRANO, Montréal)
- Alexander Mihailov
(Department of Economics, University of Reading)
- Piotr Stanek
(Department of International Economics, Krakow University of Economics)
Abstract
This paper examines how monetary policy rules operate under conditions of institutional reform, external constraints, and war in Ukraine as a case of prospective European monetary integration. Using monthly data from 2009 to 2026, we estimate Taylor-type reaction functions for the National Bank of Ukraine, allowing the setting of the policy rate to respond to inflation gaps, industrial-production activity gaps, exchange-rate pressure, interest-rate smoothing, and regime-specific wartime interactions. We then compute deviations between actual and model-implied policy rates and test whether these deviations are associated with institutional shifts, geopolitical shocks, conflict intensity, and social disruption. The results show that Ukrainian monetary policy remained partly rule-like even during periods of extreme stress. Interest-rate smoothing is strong, exchange-rate pressure enters the effective reaction function, and the largest deviations cluster around moments of nonlinear constraints: the 2015 currency crisis, the initial full-scale-invasion policy freeze, and the June 2022 credibility-restoring interest rate hike. These findings suggest that wartime central banking is not best understood as a suspension of rules. Rather, war generates constraint-contingent rule adaptation, in which credibility is preserved through temporary modifications of the instruments, coefficients, and state variables governing policy. The paper contributes to debates on rules versus discretion by showing how monetary-policy credibility can coexist with resilience-oriented adjustment in an emerging market economy exposed to geopolitical rupture. It also speaks to Ukraine's European trajectory: eventual monetary integration will depend not only on nominal convergence, but on the demonstrated capacity to preserve rule-based credibility under extreme political and security shocks.
Suggested Citation
Etienne Farvaque & Alexander Mihailov & Piotr Stanek, 2026.
"From Kyiv to Frankfurt? Ukraine's Monetary Policy, 2009-2026,"
Economics Discussion Papers
em-dp2026-08, Department of Economics, University of Reading.
Handle:
RePEc:rdg:emxxdp:em-dp2026-08
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JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
- P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
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