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Assessing Georgia's External Vulnerability

Author

Listed:
  • Valida Pantsulaia

    (Financial Stability Analysis and Macro-financial Modeling Division, National Bank of Georgia)

  • Salome Tvalodze

    (Sustainable Financing Division, National Bank of Georgia)

  • Zviad Zedginidze

    (Economist, International Monetary Fund)

Abstract

Small open economies with persistent current account deficit and financial dollarization like Georgia are especially vulnerable to external shocks. Therefore, developing an Early Warning System can play an important role in identifying external vulnerability. How can we detect the build-up of external risks in Georgia? We take this question and employ a three-step approach to create a tool for detecting rising vulnerabilities, designed for Georgia’s economic circumstances. The first step identifies historical periods of increased external vulnerability in Georgia using the Exchange Market Pressure (EMP) index. The second step determines some of the best indicators that capture rising external imbalances individually. Finally, these indicators are aggregated into a single composite - External Vulnerability Index (EVI), which proves to be helpful in detecting rising external vulnerabilities in the country.

Suggested Citation

  • Valida Pantsulaia & Salome Tvalodze & Zviad Zedginidze, 2020. "Assessing Georgia's External Vulnerability," NBG Working Papers 04/2020, National Bank of Georgia.
    • Handle: RePEc:aez:wpaper:2020-04
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    File URL: https://nbg.gov.ge/fm/wp/nbg-wp-2020-04.pdf
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    References listed on IDEAS

    as
    1. Gurnain Pasricha & Tom Roberts & Ian Christensen & Brad Howell, 2013. "Assessing Financial System Vulnerabilities: An Early Warning Approach," Bank of Canada Review, Bank of Canada, vol. 2013(Autumn), pages 10-19.
    2. Andrew Berg & Eduardo Borensztein & Catherine Pattillo, 2005. "Assessing Early Warning Systems: How Have They Worked in Practice?," IMF Staff Papers, Palgrave Macmillan, vol. 52(3), pages 1-5.
    3. Don E. Roper & Stephen J. Turnovsky, 1980. "Optimal Exchange Market Intervention in a Simple Stochastic Macro Model," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 296-309, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    external vulnerability; exchange market pressure; early warning indicators; signalling approach;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G01 - Financial Economics - - General - - - Financial Crises
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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