1. Stabilization Policy in Ukraine: A Post-Keynesian Approach
Anton Filipenko,
Dr. of Economics, Professor – Taras Shevchenko national university of Kyiv

2. Post-Keynesian concept of stabilization policy
1. Instability hypothesis
Market economy systems are unstable as the result of competitive constraints with the threat of continued equilibrium under not full employment.
There is possibility for state to apply stabilization measures.
2. Production and employment are determined by aggregate demand

3. Post-Keynesian concept of stabilization policy
3. The main aim of economic policy is maintenance of full employment.
Price stability has lower priority than full employment.
Budget deficit is possible in the short-run.
4. Tariff autonomy in wage policy is complemented by income policy.
5. Aggregate demand is determined by counter cyclical fiscal policy.

4. Demand-led stabilization policy
Post-Keynesian version of stabilization policy is oriented towards the stimulation of aggregate demand due to:
decrease of tax burden through:
reduction of corporate tax and income tax rates;
increase of government expenditures with
focus on increase of government (public) investments;
promotion of investment activities through:
- reduction of Central Bank discount rate,
- reduction of the depreciation (amortization) period,
- respective increase of investment return;
(if required) devaluation of local currency with the aim of export promotion.
(Welfens, , 353)

5. Demand-led stabilization policy
Low interest rates via monetary policy
Strategy of aggregate demand stimulus
Improvement of income expectations
Consumption
demand
Net exports
State consumption
Investments
Reduction of income tax
Increase of transfers
and social aid
Accelerated amortization
Corporate tax reduction
Increase of state expenditures for investments
Increase of state consumption
Devaluation
Export promotion
Import reduction
Problem of deficit financing
(crowding-out)

6. The main objective of post-Keynesian stabilization policy is securing full employment with price stabilization playing a secondary role.
In the short term, the excess of the budget deficit norm is permissible.
State intervention is performed as counter-cyclical regulation by the means of fiscal policy aimed at aggregate demand stimulation.

7. Keynes gave two reasons for such intervention.
The first one is what he called ‘animal spirit’, the instability of private behavior under the influence of spontaneous expectations leading to excessive optimism followed by excesses of pessimism.
Second, Keynes argued that nominal rigidities of wages and prices prevent the self-correcting market mechanisms from operating and moving the economy back to equilibrium.

8. In Keynes’s opinion, the combination of private instability and ineffective self-correcting mechanisms provided a justification for relying on counter-cyclical monetary and fiscal policies to smooth out economic fluctuations and prevent economic depression (Benassy-Quere et al., 2010).

9. The last recession in Ukraine’s economy was caused by the aggregate demand shock due to the reduction of consumption on the population and the curtailment of investment demand for goods and production services, on the one hand; and on the other hand, due to the incredible reduction of Russian market for Ukrainian goods and services.
Aggregate supply shock brought about by the loss of production capacities in Crimea and in the East of the country.

10. Business Cycle in Ukraine, 2011-2017
Real GDP growth in Ukraine (%, annually)
2017- Projection (WEO)
Source:
State Statistic Service of Ukraine:
IMF World Economic Outlook:

11. During the business cycle government of Ukraine attempted to provide a different kinds of stabilization policy, using a fiscal and monetary instruments.

12. Main instruments of stabilization policy in Ukraine
Fiscal Policy - decrease of tax burden
Corporate and income tax rates, (annually, %)
CTR
ITR
2011 23 15
2012 21 17
2013 19
2014 18
2015 20
2016
CTR - corporate tax rate
ITR - income tax rate
Source:
State Fiscal Service of Ukraine:
Trading Economics:

13. Increase of government spending through government investment spending
Fiscal policy
Increase of government spending through government investment spending
Government investment expenditures (bln UAH)
Source:
State Fiscal Service of Ukraine:

14. Main instruments of stabilization policy in Ukraine
Monetary policy
Discount rate of National Bank of Ukraine (%, annually)
Source:
National Bank of Ukraine (NBU):

15. Unemployment rate, 2011-2016 (%, annually)
Outcomes
Unemployment rate, (%, annually)
2011
2012
2013
2014
2015
2016
Source:

16. Inflation (CPI), 2011-2016 (%, annually)
Source:
National Bank of Ukraine (NBU):

17. (%, december to december)
Real wages in Ukraine,
(%, december to december)
Source:
State Statistic Service of Ukraine:

18. Main Macroeconomic Indicators
2011
2012
2013
2014
2015
2016 F
2017F
GDP, USD billion
163
173
180
130 87 88 92
Real GDP Growth, % yoy
5,5
0,2
0,0
-6,6
-9,9
2,0
3,0
Fiscal Balance, % of GDP
-4,3
-5,5
-6,5
-11,7
-2,1
-4,0
-3,0
Public Debt, External and Domestic,% of GDP
36,4
36,6
40,4
69,4
80,1
84,4
82,0
Consumer Inflation,%yoy
4,6
-0,2
0,5
24,9
43,3
12,4
10,0
Hryvnia Exchange Rate per USD
8,0
8,1
8,2
15,8
24,0
27,0
28,0
Current Account Balance,% of GDP
-6,3
-8,3
-9,0
-4,1
-3,7
-2,0
FDI, Net Annual Inflow, USD billion
7,0
7,2
4,1
0,3
2,3
3,4
International Reserves, USD billion
31,8
24,5
20,4
7,5
13,3
15,5
17,0
Public External Debt, USD billion
33,3
32,1
31,7
34,9
47,0
55,0
60,0
Private External Debt, USD billion
84,6
92,0
99,2
70,0
65,0
62,0

19. Conclusion
A Post-Keynesian approach in stabilization policy of Ukraine had a next main consequences.
First. The leading position has taken a demand – led stabilization policy in terms of dynamic of consumption demand and public investment (government expenditure). In other words, there has been investment-led and wage-let stabilization policy.
Second. The process of economic stabilization and access of equilibrium was relatively short period of time (3 years). In order to get a previous amount of GDP (2013) in the nearest 6-7 years the annual rate of GDP growth has to be 7-8%.

20. Third. The main reasons of the fluctuations of business cycle were exogenous shocks due to the loss of industrial, agricultural and services capacities in Crimea and Donbas regions.
Forth. Ukrainian economy needs stabilization policy ad hoc and more importantly it needs a policy of deep and comprehensive reforms.
Fifth. Post-Keynesian economic methodology has an important meaning in an emerging market economies.