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 "Identifying the Phillips Curve in Georgia" was prepared by the staff of Macroeconomics Research Division at the NBG. This paper discusses why endogenous monetary policy may make it difficult to estimate the causal relationship from economic slack to inflation and uses two econometric approaches that try to deal with this problem. The resulting empirical estimates show that the slope of the Phillips Curve in Georgia is relatively flat, even though it is still steeper than the estimates for the developed economies. The resulting high sacrifice ratio makes it all the more important for the NBG to remain vigilant and proactive in anchoring inflation expectations. In addition, the authors show that half of economic agents' inflation expectations in Georgia are backward-looking (with the other half being forward-looking). This, despite important improvements during the last decade, implies still significant room for monetary policy to further anchor inflation expectations to its target.

The working papers can be accessed at the following page.