OVERCOMING FUNCTIONAL DEFORMATIONS OF ECONOMIC POLICY UNDER INSTITUTIONAL UNCERTAINTY

Abstract

The full-scale war has posed an unprecedented task for Ukraine — to secure an economic basis for resisting armed aggression, while remaining within the paradigm of an open market economy and basic democratic freedoms. It has been proven that the situation of institutional uncertainty, which developed due to the effects of the war, led to excessive variability in the behavior of key state policy recipient entities, which are in a state of volatile identity. This reduces the effectiveness of the state’s economic policy, hampers the performance of its critically important functions of ensuring defense capability, resilience and basic recovery. Therefore, the peculiarity of economic policy’s functions in war economy and recovery context necessitates considerable changes in its institutional design.

A set of identity institutions, which should be formed first to ensure the institutional re-identification of economic entities and public administration institutions, has been identified. At the same time, the main drivers for the spread of positive institutional changes are the formation of opportunities for capitalization of resources owned by entities and ensuring the inclusive development by involving the widest possible segments of society in vigorous economic activity and fair distribution of outputs.

Using the evidence from monetary policy implementation, it is shown that in Ukraine, the ineffectiveness of routine economic policy instruments is currently compensated through the use of substitute policies that are insufficiently effective, can deplete the resource capabilities of public administration institutions and increase transaction costs for performing the necessary regulations. To achieve proper effectiveness of economic policy, it is necessary to shift to combined policies, in which the central role will be played by specialized management institutions being in close cooperation with providers of adjacent policies.