Financing the Deficit of the State Budget by National Bank of Georgia (1996-1999)

In this paper the concept of total gross seigniorage is used to analyze sources of revenues of National Bank of Georgia (NBG) and their distribution in the period 1996.1999. A comprehensive framework for measuring total seigniorage and its main components is presented and estimates of seigniorage revenues (sources and uses) are computed and analyzed. It is shown that in the considered period fiscal revenues from NBG have not been extensively financed by the money supply (consequently, cannot be estimated by the monetary seigniorage), but have been mostly covered by the reduction of the non government debt hold by central bank. Since the stock of international and private domestic assets hold by National Bank of Georgia is limited, in long run NBG cannot rely on it. The only way how, in the future, NBG can finance large deficits of the state budget is to use monetary seigniorage. This, however, will have to be accompanied by significant growth of monetary base and will cause a danger of large inflation.Georgia, deficit

Information-processing, technological progress and regional retail networks dynamics

In underdeveloped regions retail firms play a significant role in employment creation and provide local governments with large part of their tax revenues. The existence of retail networks is usually explained by spatial factors and economies of scale in transportation and/or increasing returns in storage. In many cases, such as trade in services or goods that cannot be transported or stored, these factors are irrelevant. The hypothesis in the paper is that the existence of retail networks can be explained by the rational behaviour of firms operating in a stochastic environment. It is shown that demand uncertainty serves as an independent source of retail trade, and, consequently, the ability of firms to process information and predict demand affects the characteristics of retail networks. The results indicate that (1) risk-averse firms always devote resources to demand forecasting, (2)producers are better off trading with retailers than with final consumers, (3) the volume of output supplied through the retail network is greater than it would be if producers traded directly with consumers (it improves welfare), (4) the size of retail networks is determined by the variance of demand fluctuations, (5) technological progress in data-processing, which decreases uncertainty about demand, also decreases the size of retail networks. This, in turn,reduces employment and tax revenues in underdeveloped regions.

From Transition to Monetary Integration: Revenues from Seignorage in Poland

The analysis presented in the paper focuses on seigniorage revenues in the period of transition to market economy and fiscal consequences of European monetary integration. A comprehensive framework for a measurement of seigniorage revenues in transition eriod is presented and estimates of its sources and uses in the period 1990–2000 are computed and analyzed. The analysis reveals that in Poland at the end of the last decade revenues from the money creation have not been extensively used as a tool for financing government expenditures. Furthermore, it is shown that, in contrary to the transition period, an accession to European Monetary Union will be accompanied by significant fiscal gains resulting from redistribution of seigniorage wealth between member countries.seigniorage, central banks, economies in transition, National Bank of Poland, NBP, European integration, EMU.

Inflation and Adjustment of Relative Prices in Georgia

The paper focuses on the dynamics of relative prices of goods and services in Georgia in the period of relative macroeconomic stabilization i.e., in years 1996–2001. Structure of Georgian consumer price index (CPI) is described in details and an analysis of the dynamics of relative prices is presented. It is shown that inflation is positively correlated with the variability of relative prices as measured by the standard deviation of the distribution of prices and also with the third moment (skewness) of the overall distribution of prices. Consequently, the efforts to minimize relative price variability should be considered an important part of anti-inflationary policy (the main recommendation for conducting anti-inflationary policy should include frequent increases of administratively regulated prices slightly in excess of overall inflation so that upward adjustments can take place without inducing large price variability). Moreover, based on the examination of basic 8 groups of goods and services and 56 subgroups included into basket used for CPI computation, it is shown that in the period under study the general price level increased mainly due to the increase in prices of goods with administrative regulated prices (except "alcoholic beverages"). In contrary, free market prices for food and beverages (except "fruits and vegetables") and other goods and services (except "personal care and effects") increased much less than the general price level in the country, i.e., relatively decreased.inflation, relative prices, Georgia

Determinants of Foreign Direct Investment in Georgia

Foreign direct investment (FDI) brings host countries capital, productive facilities, and technology transfers, as well as new jobs and management expertise. Thus it is important to understand why in many countries FDI inflow is lower than it would be expected. The goal of this study is to investigate factors determining flow of FDI in Georgia. The key point of the analysis is the impact of stability of economic and legal environment on the pattern of FDI. In particular, we show that (i) the variability of basic macroeconomic fundamentals decreases the flow of FDI, (ii) high volatility of fiscal, business regulations makes FDI smaller, (iii) unstable economic environment does not attract long term investors but mainly speculative capital. Based on theoretical findings we formulate clear message to policy makers stating that in order to expect significant flow of long term and non-speculative foreign capital, first of all, a stable economic and legal environment is needed.Foreign Direct Investment, FDI, determinants of FDI, Georgia

Central Bank Seigniorage: Czech Republic 1993-1997

In this paper the concept of total gross seigniorage is used to analyze sources and uses of central bank seigniorage revenues in the Czech Republic during the period 1993-1997. A comprehensive framework for measuring total gross seigniorage and its main components is presented and estimates of seigniorage revenues (sources and uses) are computed and analyzed. The study shows that the conventional concept of monetary seigniorage should not be used as an estimate of government gains from money creation. Moreover, the analysis of the scope of budget deficit financing through money printing in the considered period in the Czech Republic presented in the paper shows that revenue from the creation of money has never been extensively used as a tool for financing government expenditures.Seigniorage, Economies in transition, Czech National Bank

Moldova: Assessment of Civil Society and Democratic Institutions

Non governmental organizations have been active in Moldova since 1989, but a civil society started its today’s formation as a result of radical reforms in economic and political areas only after the country became independent in 1991. Since that time the establishment of a transitional civil society in Moldova is under way. However, starting from 2001, when the Communist Party won the general elections, development of the nongovernmental sector has become slower. Although several positive patterns evident at the end of the nineties indicate progress in the development of Moldovan non-governmental sector, there is a number of sensitive issues (e.g., freedom of media, human rights protection) in relation to which certain regress has been observed especially in the last two years. Media market in Moldova is far from being free, and protection of human rights remains to be a problem (in all respects, situation of non-governmental sector in Transnistria is much worse than in Moldova). Finally, it needs to be emphasized that critical socio-economic situation seems to be the main threat to democracy and the rule of law in the country. This is because further significant economic decline can provide fertile ground for non-democratic political forces and extremists. Economic collapse could be a real threat to the achievements in the area of democratization and civil society development. Thus, only results of a successful economic reform process may reverse undesirable patterns and change socio-economic situation in Moldova, increase income of population, decrease poverty, guarantee stability and irreversibility of Moldovan achievements in democratization and development of civil society.Moldova, Transnistria, civil society, democratic institutions