Global financial cycle: Impact on Ukraine

Abstract

Global financial fluctuations that arise in the financial centres – the US and the EU through international channels of monetary transmission affect the financial markets of peripheral countries, including Ukraine, where the assessment and consideration of such an impact is an important element of monetary policy. Therefore, the purpose of the article was to assess the impact of cyclical fluctuations of the global financial situation on the financial sector of Ukraine’s economy. As a result of correlation analysis, a direct relationship between leverage indicators in Ukraine and the Chicago Board Options Exchange Volatility Index and Euro Stoxx Volatility Index has been revealed. At the same time, the direct relationship between these indices and the growth of domestic credit in Ukraine contradicts the concept of the global financial cycle and may indicate the presence of more important factors of domestic credit. Correlation analysis of the volatility index of the Chicago Board Options Exchange and capital flows in Ukraine showed that in the years of increased global uncertainty and volatility, the volume of capital flows decreased, especially for portfolio debt instruments. Analysis of the cyclical components of the global and domestic credit cycle in Ukraine obtained with the Godric-Prescott filter indicates a higher level of volatility in domestic lending. The obtained value of the concordance coefficient did not make it possible to draw an unequivocal conclusion about the counter- or procyclical nature of domestic credit fluctuations relative to the global volume of loans in the non-banking sector. It has been found that the global financial cycle was not a significant factor in domestic credit in Ukraine in the studied period. The practical significance of the results lies in the fact that the National Bank of Ukraine will be able to implement a monetary policy independent of the global financial fluctuations and limit the outflow of capital during the period of growing uncertainty in the international financial markets.