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 "Core Inflation Requiem: Paving the Way for a Dual-Component CPI in FPAS Central Banks", was prepared by the staff of Macroeconomics and Statistics Department of the National Bank of Georgia and the NBG Advisor Douglas Laxton. The principal objective of the paper is to present a novel approach for decomposing the Consumer Price Index, critiquing the drawbacks of traditional core inflation measures, which simply omit volatile items like food and energy without solid economic narrative.
The new approach categorizes prices into "flexible" part, which adjust quickly (hence, being an early warning indicator) and are influenced by external factors, and "sticky non-tradables" part, which adjust more slowly, offering a clearer view of inflation expectations. We also highlight the significance of studying the interplay between exchange rate movements and domestic price dynamics in dollarized economies. Interactive charts of Non-Tradable Sticky Price and Flexible Price inflations can be found on NBG website. The working papers can be accessed at the following page.
