The New Issue of the NBU Visnyk Offers a New Approach to Nowcasting GDP, Studies Evolution of Ukraine’s Deposit Guarantee System, and Debates Burning Issues of Behavioral Finance

The December issue of Visnyk of the National Bank of Ukraine studies topics of forecasting in central banks, practical aspects of reforms in Ukraine’s deposit guarantee system and theory of households’ decisions in behavioral finance.

In particular, works presented in the issue address problems of analytical capacity in the NBU and functioning of Ukraine’s banking sector. Authors analyze existing practices in short-term GDP forecasting and operation of deposit guarantee system and provide suggestions on how to boost forecasting accuracy and national financial stability. Another aspect of macrofinancial stability that is discussed in the issue is the behavior of households when they make decisions on investments and borrowing.

Articles published in the new issue contain science-based conclusions and practical recommendations on the following topics:

● Application of methods of short-term forecasting in the NBU
The article "Nowcasting Ukraine"s GDP using a factor-augmented VAR (FAVAR) model" by Anton Grui and Roman Lysenko study the approach to nowcasting of the current value of Ukraine’s quarterly GDP, which uses leading indicators with a different disclosure frequency. The authors generalize data from a set of explanatory variables into several factors by using principal components analysis and estimate the factor-augmented VAR (FAVAR) model. The article shows how incorporation of new data as they are published throughout a quarter affects GDP nowcasts. The authors study the influence of separate data releases on the accuracy of forecasts.

● A macroprudential perspective of changes in Ukraine’s deposit guarantee system
The article "Evolving Ukraine’s Deposit Guarantee System Towards Global Standards: A Macroprudential Perspective" presents the results of a scientific research conducted by Andriy Danylenko. In the context of his research, the author proposes some changes to deposit guarantee system in Ukraine, which can boost its contribution to national financial stability. Taking into account the current post-crisis situation and challenges for the deposit guarantee system in Ukraine, author analyzes the evolution of international research and practice of building efficient deposit guarantee schemes in Europe and globally.

● The mechanism of household investment and borrowing decisions in behavioral finance
Pavlo Illiashenko in his article "Behavioral Finance: Household Investment and Borrowing Decisions" makes focus on problems of household’s under-saving, non-participation, and under-diversification, as well as mistakes in choosing debt contracts and managing debt obligations, in the context of behavioral finance. In the author"s opinion, interpretation of behavioral finance as a field solely devoted to the study of asset pricing and behavior of individual investors is misleading. It overlooks a growing body of empirical work in household finance, a subfield of behavioral finance concerned with household investment and borrowing decisions. The author focuses on the plurality of non-mutually exclusive explanations of the observed phenomena, including those that come from the competing research traditions. The special emphasis is made on the choice between fixed rate and adjustable rate mortgages, given its significance for macrofinancial stability. The review also discusses the evidence indicating that firms are aware of households’ behavioral weaknesses and readily exploit them.

The new issue of Visnyk of the National Bank of Ukraine is the eleventh issue published in the revised format of the journal. Starting from September 2015, the NBU Visnyk is published on the official NBU website in electronic format quarterly in Ukrainian and English.

The editorial board invites academics, experts, financiers and representatives of banking academic community to join the research within the scope of the journal and send research materials to be reviewed and published to email: journal@bank.gov.ua.

Detailed information about the publication and requirements to articles can be found via the link: Visnyk of the National Bank of Ukraine.