The National Bank of Georgia publishes the next paper in its NBG Working Paper Series. The working papers aim to present research on topics relevant to central banks and economics profession. The papers are circulated to elicit comments and encourage debate on ongoing research. The Working Paper Series are coordinated by the Macroeconomic Research Division and will focus on topics relevant for central bank policy, including macroeconomic modeling, monetary and exchange rate policies, financial stability, etc.

The next working paper in the series titled "Assessing Georgia's External Vulnerability", was prepared by the staff of Macrofinancial Modeling and Analysis Division at the NBG with the involvement of the former NBG colleague, Zviad Zedginidze who is currently an advisor to the executive director at the International Monetary Fund. The aim of this paper is to assess Georgia's external vulnerability. 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. We 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.

The working papers can be accessed at the following page.