Assessing Georgia's External Vulnerability

Valida Pantsulaia (), Salome Tvalodze () and Zviad Zedginidze ()
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Valida Pantsulaia: Financial Stability Analysis and Macro-financial Modeling Division, National Bank of Georgia
Salome Tvalodze: Sustainable Financing Division, National Bank of Georgia
Zviad Zedginidze: Economist, International Monetary Fund

No 04/2020, NBG Working Papers from National Bank of Georgia

Abstract: 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. How can we detect the build-up of external risks in Georgia? We take this question and 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.

Keywords: external vulnerability; exchange market pressure; early warning indicators; signalling approach (search for similar items in EconPapers)
JEL-codes: C13 E58 E61 G01 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2020-11
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Persistent link: https://EconPapers.repec.org/RePEc:aez:wpaper:2020-04

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