Modeling Inflation in Georgia
IMF Working Papers, November 1, 2003
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Bibliographic details
- Authors: Wojciech Maliszewski
- Published: November 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451874914.001
Summary and key findings
- The paper explains the behavior of inflation in Georgia in the post-stabilization period.
- A long-run equation linking prices to money and the exchange rate, as well as a short-run, dynamic equation for inflation are estimated.
- The inflation equation is stable.
- The analysis points to a dominant role of the exchange rate in the behavior of inflation.
- The equation shows a low persistence of inflation in Georgia.
- The equation explains well the behavior of inflation after the Russian crises, when inflation increased sharply but was quickly brought under control, as the National Bank of Georgia kept its monetary policy tight and the exchange rate stable.
Methodology and technical approach
- Estimation of a long-run price equation linking prices to money and the exchange rate.
- Estimation of a short-run, dynamic inflation equation.
- Use of cointegration techniques is indicated by the keywords and the structure of long-run versus short-run estimation.
Implications and interpretation
- Exchange rate movements play a dominant role in explaining inflation dynamics in Georgia during the period studied.
- Low inflation persistence implies that shocks to inflation dissipate relatively quickly.
- The documented experience after the Russian crises is consistent with tight monetary policy and exchange rate stability contributing to rapid containment of inflation.