Publisher: BEROC Belarusian Economic Research and Outreach Center

Exploring SVAR-based empirical Measure of Inflation Expectations for Belarus: Implications for Monetary Policy

Свойства и характеристики SVAR-индикатора инфляционных ожиданий для Беларуси: последствия для монетарной политики

Author(s): Dzmitry E. Kruk / Language(s): English

Keywords: inflation expectations; empirical measures of inflation expectations; monetary policy; Belarus;

This article explores empirical SVAR-based measure of inflation expectations for Belarus. Properties of this measure result in a diagnosis that inflation expectations in Belarus are highly volatile and unanchored. Level shifts in inflation expectations give a rise to a specific phenomenon of Belarusian monetary environment which is multiple regimes of functionality with severely different properties. This sensitively restricts the effectiveness of monetary policy in the country. Hence, stabilizing inflation expectations at a reasonably low level and anchoring them is argued to be an important precondition for effective monetary policy in Belarus.

Screening as a Unified Theory of Delinquency, Renegotiation, and Bankruptcy

Screening as a Unified Theory of Delinquency, Renegotiation, and Bankruptcy

Author(s): Natalia Kovrijnykh,Igor Livshits / Language(s): English

Keywords: Default; Delinquency; Bankruptcy; Renegotiation; Adverse Selection; Screening; Consumer Credit; D14; D82; D86; G18; G21;

We propose a parsimonious model with adverse selection where delinquency, renegotiation, and bankruptcy all occur in equilibrium as a result of a simple screening mechanism. A borrower has private information about her cost of bankruptcy, and a lender may use random contracts to screen different types of borrowers. In equilibrium, some borrowers choose not to repay, and thus become delinquent. The lender renegotiates with some delinquent borrowers. In the absence of renegotiation, delinquency leads to bankruptcy. Presence of competition may induce the incumbent lender to renegotiate even when he would not do so in the monopoly setting. We apply the model to analyze effects of a government intervention in debt restructuring. We show that a mortgage modification program aimed at limiting foreclosures that fails to take into account private debt restructuring may have the opposite effect from the one intended.

Commitment to Equity for Children: Redistributive Effects and Efficiency of Social Assistance to Households with Children in Belarus

Commitment to Equity for Children: Redistributive Effects and Efficiency of Social Assistance to Households with Children in Belarus

Author(s): Kateryna Bornukova,Jose Cuesta,Gleb Shymanovich / Language(s): English

Children are explicitly targeted by social policy in Belarus, as child-related benefits constitute a major part of the public direct transfers. Despite this, households with children are among the social groups most vulnerable to the risk of absolute poverty and multidimensional poverty in Belarus. This paper seeks to inform the understanding of the distributional impact of taxes and public spending on children in Belarus. The analysis reveals that current child benefits system is geared towards supporting the families with children aged 0-2, which leads to crucial gaps and shortfalls in coverage of the most vulnerable groups: households with three or more children, single-parent households, and children aged 6-9. Besides, households with children often bear a heavier-than-average tax burden as compared to the general public. Therefore, the design of the social assistance to the households with children needs improvement, in particular, by means of development of targeted social assistance and introduction of vulnerable group-specific benefits for, inter alia, households with three or more children, and single-parent households.

Inequality in Belarus from 1995 to 2007

Inequality in Belarus from 1995 to 2007

Author(s): Maksim Yemelyanau / Language(s): English

Keywords: Belarus; Ukraine; transition; income inequality; expenditure inequality; social security; DiNardo-Fortin-Lemieux; counterfactual kernel densities; D31; D63; H55; O15;

Income and consumption inequality increased in all transition economies, albeit to very different levels. The existing literature suggests that countries that were slow to undertake pro-market reforms experienced the largest increases in inequality, with the notable exception of Belarus, one of the least reformed ex-Soviet republics, that nevertheless has inequality comparable to the most advanced and least unequal transition countries of Central Europe. This paper studies the evolution of inequality in Belarus in 1995-2007, decomposes inequality by sources of income, and provides a comparison of Belarus and Ukraine, which suggests that the large difference in inequality is due to different income policies of the two countries: Belarus not only avoided mass privatization, but also kept many of the old-style Soviet social security features.

Foreign Investments: Not just Attraction, but Effectiveness

Foreign Investments: Not just Attraction, but Effectiveness

Author(s): Maryia Akulava / Language(s): English

Keywords: Foreign Investments in Belarus;

When it comes to Belarusian efforts to attract foreign investments, the year 2010 looked a lot like the previous year. Foreign capital inflow kept growing at a slow pace; there were no major privatization deals, as the state is still unwilling to put up for sale large property units and is reluctantly ready to cede control only in insignificant enterprises. // Nevertheless, the year 2010 was marked by the country’s successful debut on European stock markets with issuing Eurobonds, listed at the Luxembourg Stock Exchange in summer. Furthermore, important steps were made to increase the investment appeal of the country: in 2010, the government abolished licensing of many business activities and lifted the ban on sale of Belarusian joint-stock companies’ shares, a move contributing to a recovery of the domestic stock market.

Macroeconomic Trends in 2010: Growth at any Cost

Macroeconomic Trends in 2010: Growth at any Cost

Author(s): Dzmitry E. Kruk / Language(s): English

Keywords: Belarus; economy; national economy;

The year 2010 saw Belarus gradually being pulled out of cyclical recession owing to the revival of external markets and massive incentives provided by the economic authorities. However, the administration set itself a priority task of reaching ambitious GDP and income growth targets while largely ignoring economic requirements for sustainable and fast paced long-term economic development. Moreover, the investment expansion scenario formulated by the government, which envisaged measures to restrain the accumulation of structural disproportions, de facto was not implemented, as some of its prerequisites proved unfeasible. The outcome was twofold: on the one hand, the campaign to reach quantitative indicators resulted in quite impressive GDP and income growth figures; on the other hand, new disproportions in the economy were created, and those already in existence were enhanced. The problems of the foreign account deficit, external debt, money market imbalances, inflationary potential, fragile financial standing of domestic companies had therefore aggravated by early 2011. These problems put a question mark over both current macroeconomic stability and long-term sustainable growth.

The Mechanism of Adjustment to Changes in Exchange Rate in Belarus and its Implications for Monetary Policy

The Mechanism of Adjustment to Changes in Exchange Rate in Belarus and its Implications for Monetary Policy

Author(s): Dzmitry E. Kruk / Language(s): English

Keywords: Belarus; economy;

This paper aims at visualizing adjustment mechanisms of the Belarusian economy to changes in exchange rate level and providing correspondent policy recommendations. The paper is organized as follows. Section 2 deals with methodological issues of equilibrium exchange rate estimation and its specifics for Belarus. Section 3 is devoted to analysis of the pass-through effect from nominal exchange rate to prices and its impact on the short-term equilibrium exchange rate. In fourth Section, main conclusions and policy recommendations are provided. Technical issues are presented in Annex A.

Structural Shifts in the Dynamics of Inflation and Monetary Units in Belarus

Структурные Сдвиги в Динимике Инфляции и Денежных Агрегатов в Беларуси

Author(s): Igor Pelipas / Language(s): Belarusian

Dynamics of Inflation and Monetary Units in Belarus: Stationary Process or random Walking?

Динамика инфляции и Денежных Агрегатов в Беларуси: стационарный Процесс или случайное Блуждание?

Author(s): Igor Pelipas / Language(s): Russian

Keywords: inflation; Belarus;

Анализу динамических свойств макроэкономических показателей уделяется значительное внимание в экономической литературе. С эконометрической точки зрения данная задача решается посредством определения порядка интегрированности изучаемых показателей при помощи соответствующих тестов на единичный корень (стационарность).1 Если нестационарная переменная, обычно представленная в логарифмическом виде, становится стационарной в результате применения метода первых разностей, то она содержит единичный корень и имеет порядок интегрированности I(1). В свою очередь, первые разности данной переменной, являющиеся стационарным процессом, имеют нулевой порядок интегрированности I(0).

Assessment of the Equivalence Scale for Belarusian Households and its Influence on Determining socially vulnerable Population Groups

Оценка шкалы эквивалентности для Белорусских домохозяйств и ее влияния на определение социально-уязвимых групп населения

Author(s): Kateryna Bornukova,Aleksandr Chubrik,Gleb Shymanovich / Language(s): Belarusian

Keywords: Belarus; economy;

This article evaluates the equivalence scales for households in Belarus. For the calculation, data from the Household Sample Survey for 2010 were used. The equivalence scales were calculated through the regression estimation of the Engel curve. This method is widely used around the world and, in contrast to the minimum consumption basket method used by Belstat, reflects economies of scale that arise in the process of optimal distribution of expenses within the family. The resulting scale (0.6 for adults other than the head of household, 0.5 for a school-age child and 0.4 for a pre-school child) is very different from the scale officially used in Belarus (0.8 for adults other than the head of household, 0.5 for children under three years of age and 0.9 for children over 3 years). It is shown that this has significant implications for assessing the relative poverty of certain vulnerable groups of the population, which is of great importance for the development of a well-targeted social policy.

The Future of the Lending System Policy in Belarus

Будущее системы директивного кредитования в Беларуси

Author(s): Dzmitry E. Kruk / Language(s): Belarusian

Keywords: directed lending; financial repression; the economic growth; E37; E43; E61; G28; O41; O42;

This analytical note is devoted to the problems of directed lending in Belarus and the search for possible mechanisms for its reform. The paper shows the main features of the directed lending system in Belarus and highlights the channels of its impact on economic growth. Among the problems that cause directed lending from the perspective of long-term growth, there are losses in the efficiency of distribution, a decrease in the productivity of fixed capital, and a loss in the efficiency of financial intermediation. In addition, in the short term, directed lending can cause shocks in the money market and their spread in the national economy. In order to eliminate or at least minimize the negative impact of directed lending, a list of recommendations for reforming the existing system is provided.

Impact of the 2011 devaluation on real income in Belarus

Влияние девальвации 2011 года на реальные доходы в Беларуси

Author(s): Kateryna Bornukova / Language(s): Belarusian

Keywords: devaluation; Belarusian Ruble;

In 2011, Belarus experienced a currency crisis and an almost threefold devaluation of the Belarusian ruble. As a result of the crisis, real incomes of the population fell due to high inflation rates. This Policy Paper describes the results of the 2011 Real Income Survey. Average real income in the fourth quarter of 2011 fell by 15% compared to the same period in 2010, however, at the same time, those strata of the population who received relatively higher incomes in the first quarter of 2011 suffered the most. If those who were included in the first decile in terms of income in the 1st quarter of 2011 (10% of the population with the lowest income). By the 6th quarter, real incomes did not decrease, then the representatives of the tenth decile (10% of the population with the highest income) had real incomes decreased by 30%. Pensioners have also been hit hard by the crisis - the real incomes of pensioners have decreased by 16.7% (Q4 to Q1 2011).

Foreign investment - no drastic changes

Иностранные инвестиции – отсутствие кардинальных перемен

Author(s): Marija Akulova / Language(s): Russian

The picture observed in 2011 in the field of attracting foreign investments was not much different from previous years. A single large sale accounted for a large share of FDI attracted over the year. The government continues to view privatization only from a fiscal point of view, which is reflected in the low growth rates of external capital inflow into the economy. The financial crisis has further complicated the process of finding an investor. The measures taken by the Government and the National Bank managed to stabilize the situation by mid-autumn. There have also been changes in taxation aimed at increasing investment activity.