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Effectiveness of Monetary Regulation in Conditions of Sanctions

Effectiveness of Monetary Regulation in Conditions of Sanctions

Journal of Institutional Studies, , Vol. 11 (no. 2),

The adaptation process of the Bank of Russia institutional activity to international sanctions was considered in the article. For this, the dynamics of three new special indices – monetary efficiency, monetary stability and monetary freedom – was studied. The ideology of construction of the specified indices is based on the account of two functions of institutes – stabilizing and stimulating – and originates in works of D. North and D. Dzolo. Empirical analysis of these indices showed that international sanctions completely reformatted the activities of the Russian mega-regulator, which began to focus mainly on stabilizing institutional norms. The inconsistent policy of the Bank of Russia with respect to incentive rules reduced the overall effectiveness of monetary regulation. The econometric model has shown that the Monetary Efficiency Index has good predictive properties of the dynamics of GDP. Applied calculations have shown that the Bank of Russia has a fairly large reserve to maintain economic growth even under sanctions. It is shown that the activity of the Bank of Russia have been most effective in 2016–2017 and much less successful in 2015 and 2018. The estimated effect of sanctions together with the attendant negative factors does not exceed 6.5% of GDP annually. Now the stabilization component of the cycle of monetary regulation is almost completely exhausted, and therefore the further practice of the mega-regulator should be associated with the use of reserves of incentive measures. Otherwise, Russia risks stabilization without development, which is equivalent to latent degradation.

Keywords: monetary policy; monetary regime; monetary efficiency index; monetary freedom index; monetary stability index

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