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Inflation Dynamics in Georgia

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  • Kavtaradze, Lasha

Abstract

This paper examines inflation dynamics in Georgia using a hybrid New Keynesian Phillips Curve (NKPC) nested within a time-varying parameter (TVP) framework, which incorporates both forward-looking and backward-looking components. Estimation of a TVP model with stochastic volatility shows low inflation persistence over the entire time span (1996-2012), while revealing increasing volatility of inflation shocks since the “Rose Revolution” in 2003. Moreover, parameter estimates point to the forward-looking component of the model gaining importance following the National Bank of Georgia (NBG) adoption of inflation targeting in 2009. However, since 2011 the inertia of the expected future inflation takes a declining process while the backward-looking (lagged) component gradually climbs upward, thus, challenging the NBG in revising its target benchmark of 6%.

Suggested Citation

  • Kavtaradze, Lasha, 2014. "Inflation Dynamics in Georgia," MPRA Paper 59966, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:59966
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    File URL: https://mpra.ub.uni-muenchen.de/59966/1/MPRA_paper_59966.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation dynamics; Georgian economy; hybrid NKPC models; time-varying parameters; MCMC sampling method; Kalman filter.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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