Georgia: Selected Issues

Georgia: Selected Issues
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Volume/Issue: Volume 2024 Issue 136
Publication date: May 2024
ISBN: 9798400275081
$20.00
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Topics covered in this book

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Banks and Banking , Inflation , Labor , Economics- Macroeconomics , Money and Monetary Policy , International - Economics , Emigration and Immigration , commodity import price index , Georgia population projection , trend inflation , IMF staff calculation , inflation projection , Inflation , Labor markets , Unemployment , Employment , Central Asia , Middle East

Summary

This Selected Issues paper explores drivers of inflation and monetary policy in Georgia. Inflation spiked in Georgia following the pandemic and Russia’s war in Ukraine. A positive output gap indicates that high demand is generating inflationary pressure in the economy. Estimates suggest tighter monetary policy in 2021 helped significantly lower peak inflation in 2022. One response to uncertainty is for monetary policy makers to act more cautiously – responding less vigorously with monetary policy to shocks. Given the challenges in managing inflation in a highly dollarized, small open-economy prone to large external shocks, it is important to look at the drivers of inflation in Georgia, the monetary policy stance including the natural rate, the transmission mechanism including the impact of dollarization, and the appropriate monetary policy path going forward. Using a range of approaches, IMF establish that monetary policy in Georgia is effective, that it is close to neutral, and that heightened uncertainty supports a gradual policy normalization.