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 “DSGE Model for Georgia: LEGO with Emerging Market Features”, was prepared by the staff of Macroeconomics and Statistics Department at the National Bank of Georgia. The newly developed structural Dynamic Stochastic General Equilibrium (DSGE) model is a valuable addition to the NBG’s existing Forecasting and Policy Analysis System (FPAS), enhancing it by having a detailed structure of real economy and external sector. Furthermore, it enables for creating a rich environment for scrutinizing impact of supply and external shocks, a typical feature of emerging economies like Georgia. While some model features are already standard to existing DSGE frameworks, we also emphasize aspects particularly relevant to EMEs. These include dominant currency invoicing, forward premium puzzle, breakdown of Ricardian equivalence, impaired expenditure switching mechanism, decoupled domestic and imported price levels impacting real exchange rate trend, and other non-stationarities. Additionally, we distinguish between global financial centers and other trade partner economies.

The working papers can be accessed at the following page.