Inflation and some directions of improvement in its management - regulation (ინფლაციის რეგულირების სრულყოფის საკითხისათვის)

Abstract

Despite the severity of the problems facing the Georgian economy, the recent inflationary processes deserve special attention. Activation of the fight against inflation implies the study-analysis of the legal framework regulating the functioning of the monetary-credit system of the country. In the light of the foregoing in the first part of the work based on estimation of the key macroeconomic parameters stimulating inflation, in particular: the Real Gross National Product, the aggregate budget balance, foreign investitions, the trade deficit, and the actual M2 Money Stock and trends estimated parameters, and the estimates made based on the Irving Fisher’s Equation of the Theory of Money, and the conclusion(s) made upon complex analysis of the inflation targeting legal regulatory norms, improvement of the existing practice (including existing legal base) of management/regulation of inflatory processes is regarded as an urgent objective. Based on all of the above, and a number of other factors, in the final part of the article recommenations are provided to improve the efficiency of inflation regulation/management. In particular: - taking into account peculiarity of the Georgian language and adequate definition of economical essence of inflation in the legal acts, evaluation of performance of the National Bank with unambigious and objective criteria, it is deemed expedient to replace the term “Target Inflation Value” in the regulatory legal acts of the National Bank with “Inflation Threshold”; - in order to ensure operativness, necessary in effective management of the inflatory processes and effective parliamentary control over the operation of the National Bank, the esablished existing criterion for evaluating inflation is deemed expedient to be replaced with the criterion of the excess of the actual annual inflation rate over the inflation rate defined by parliamentary decree of the same year; - if the actual annual inflation rate exceeds the inflation rate of that year, defined in the decree of the Parliament of Georgia, it is regarded to be a duty of the national parliament to discuss the issue of responsibility of the President of the National Bank.