Journal number 3 ∘ Vladimer Papava ∘ Vakhtang Charaia ∘

ON THE NECESSITY OF MODIFICATION OF THE INFLATION INDEX FOR THE RELATIVELY POOR WORLDS AND GEORGIA’S EXPERIENCE

Summary The inflation index fails to fully reflect the expectation of the poor part of the population, because some of the commodity groups (e.g. electronics, cars, furniture, hotel and restaurant services, etc.) do not reflect the problem of the low-income population. Using the inflation index alone cannot guarantee successful decision-making. Under these conditions, a logical question arises concerning the kinds of problems which might occur when the main goal for a central bank’s monetary policy is only to retain price stability. This is known as inflation targeting. It should be mentioned that the NBG (starting from 2009), like the central banks of Georgia’s main trade partner countries (Turkey, Russia, Azerbaijan, Belarus, etc.), has already been exercising inflation targeting for years. Central banks employing inflation targeting frequently justify their decisions to do so and state that they have reached not only their desired target (price stability) but have a

Journal number 3 ∘ Alfred Kuratashvili ∘

"MECHANISMS" OF IMPOVERISHMENT OF PEOPLE BY FINANCIAL-CREDIT ORGANIZATIONS AND THE NECESSITY OF THEIR ERADICATION

Expanded Summary The problem of preventing and eradicating the unlawfully "legalized" criminal acts of commercial banks and other financial and credit organizations, manifested in the use of veiled fraudulent mechanisms that lead to robbery, impoverishment and enslavement of a huge number of people is currently very relevant. The topic of this research is determined and justified It is precisely by the need to prevent and eradicate the unlawfully "legalized" criminal acts of commercial banks and other financial and credit organizations that lead to robbery and impoverishment of people - leading to robbery and impoverishment of the people. The analysis of the latest research leads to the necessity and fundamental importance of research and solving the problems of preventing and eradicating the unlawfully "legalized" criminal acts of commercial banks and other financial and credit organizations towards the people, aimed at enriching financial and credit organizations by robbing

Journal number 3 ∘ Rozeta Asatiani ∘

Priorities and General Strategy of Georgias Economic Development

Summary Effective development of Georgia’s economy significantly depends on the correct direction of socio-economic processes in the country and integrated assessment. In Georgia, for the right direction of economic reform (which is too long drawn), it is necessary to know what riches the country has, what kind of wealth and quantity we have, how we use it, where it is distributed and so forth. For this, all kind of Georgia’s wealth should be properly listed and analyzed. At the same time, if we really want to move to a market economy (about which we have already been shouting for 25 years, whereas a number of countries spent this period of time to obtain the status of the “Asian tiger”), it is necessary to take the pulse of the world economy which will serve as a compass for us. It is impossible to judge about such extremely topical and burning issues, the future of Georgia, the priorities of her development and general strategy based on emotions, without taki

Journal number 3 ∘ Givi Lemonjava ∘

EFFICIENCY OF IMPLEMENTATION MECHANISMS OF MONETARY POLICY IN GEORGIA

Expanded Symmary The power and rapidity of the monetary politics influence to the economics are depending on numerous of factors. Among those the most important things are the extent of financial sector development and dollarization level. Besides the banking sector in Georgia financial sector, its all the rest components, are faintly developed. Especially the capital market development level is very low. Its influence to the capital and cash flows is almost identically zero. In addition, because high level of dollarization , it is too weak the money markt instruments development scale. The monetary policy has to function in a such environment, which results depend upon the efficiency of the transmission mechanisms of monetary policy. The aim of this paper is to check the hypothesis of monetary policies transmission mechanisms influence of price inflation. The Committee of Georgia National Monetary Policy establishes the short term rate

Journal number 3 ∘ Besik Bolkvadze ∘

ABOUT SOME PROBLEMATIC ISSUES OF THE BUDGETARY POLICY

(Expanded Summary) The article is dedicated to the most important issues of the country’s public finance as follows: frequency of budgetary changes, program budgeting, budgetary planning and analysis of its fulfillment, public budget considerations, quarterly breakdowns, distribution of budgetary assignments, projection of capital flows, reserve funds, change of budgetary remaining amount. The work suggests author’s opinions towards abovementioned problematic issues. At every stage of economic development of the country, as it is well known, the key priorities of the economic policy, in the sphere of public finance, are fiscal decisions and their effectiveness that are depicted in the implementation of the budgetary policy. Rational budgetary policy is to be directed towards the economic grows and sustainable development, on the one hand, and at the same time it must provide sound business environment with the keeping of relevant budgetary-taxation mechanism, on the other

Journal number 3 ∘ Anzor Kuratashvili ∘

SOCIALLY ORIENTED MARKET ECONOMY AND THE CRITERION OF EFFECTIVENESS OF INTERNATIONAL BUSINESS

Expanded Summary Socially oriented market economy, along with the defining economic goal of market relations, assumes a social orientation of the market-economic system, which is an indicator of the essential nature of a socially-oriented market economy and its defining specific feature. In this regard, absolute scientific, political and practical interest is the study of problems of a socially oriented market economy, and on this basis - the study of international business problems and international economic relations in general, and, in particular, the definition of the criterion for the effectiveness of international business. This is the reason for the fundamental importance and relevance of this research topic. The analysis of scientific research indicates that in fact there are no scientific papers in which the problems of international business and international economic relations as a whole would be considered taking into account the functioning of a socially oriented marke

Journal number 3 ∘ Vakhtang Chkareuli ∘

ESSENTIALS OF ECONOMIC FREEDOM AND ITS INFLUENCE ON ECONOMIC DEVELOPMENT (EMPIRICAL STUDY ON THE CASE OF GEORGIA)

Summary In this paper, we will investigate the most essential ingredients for strengthening and developing economically free environment. There is shown a systemic link between economic freedom and economic growth on the case of Georgia. Our empirical results, based on different econometric modelling techniques reveal positive relation between economic freedom and real GDP growth. Key Words: Economic Freedom, GDP Growth, Private Property, Corruption, Fiscal Health. Introduction - The Concept of Economic Freedom For to be free is not merely to cast off one’s chains, but to live in a way that respects and enhances the freedom of others - Nelson Mandela (Long Walk to Freedom) Freedom is equally necessary condition for success in life, society and business. It is one of the basic needs of every individual and has a key role for human, social, economic and political development. In its broad understanding, freedom means the existence of choices. When we are forced to

Journal number 3 ∘ Tsotne Zhghenti ∘

INSTITUTIONAL GROUPS IN GEORGIA AND TRANSITION/POST-TRANSITION ECONOMIES

Summary The institutional development is one of the actual topic in economic science. New trends and direction of institutional development is depended on its structure and framework. Transformation of institutions is important topic for every economy, especially for developing countries. First research goal is to measure a size for each institutional type transition/post-transition countries and compare to the Georgian economy. Considering both dimension of institutional structure (formal vs informal, internal vs external) we get four types of institutions. Using Global Competitiveness indexes it can be calculated size of each institutional types. Second aim of research is to determine interactions between institutions. We can use statistical methods to evaluate interactions between different types of institutions. Keywords: Formal Institutions, Informal Institutions, Internal Institutions, External Institutions, Transition Economy, Georgian Institutional Development. Introduction&

Journal number 3 ∘ Nino Zhorzhikashvili ∘

Macroprudential Policy and its Effective use Problems ( European experience)

Resume The global financial crisis of 2008 once again raised the issue of more active use of macroprudential policy, as it was revealed that the microprudential policy and its regulations were not sufficient for financial stability. Macroprudential policy-policy that focuses on the regulation of the entire banking system, which includes the identification of the systemic and financial risks and aims to eliminate economic losses at a minimum level , monitoring and control, pursuing the regulatory and countercyclical policy in financial sector to ensure economic stability. The purpose of the Macroprdential Policy is to increase the sustainability of the financial system towards endogenous shocks to limit financial imbalance and to minimize macroeconomic expenses caused by financial instability. To do this, it is necessary to carry out countercyclical policy and to prevent risks in this regard. Effective implementation of the macroprudential ap

Journal number 3 ∘ Giorgi Miqeladze ∘

EMPIRICAL REALIZATION OF INVESTMENT CASH FLOW MODEL (CASE OF GEORGIA)

Expanded Summary The article empirically tests R. Kopke’s investment cash flows model according to Georgian economy. During empirical realization of the model problems of lack of information or non-existent data are resolved by different economic methods (using Substitutive variables, estimation data of other econometric model and etc.). Empirical model’s dependent variable is Georgia’s total real investment as factor variables are Georgia’s total real capital, companies’ turnover and their lagged values. Because of lack of empirical information about Georgia’s total capital, indicator values are estimated according L. M. Koyck’s private modification of investment accelerator model. For the same reason in the model factor variable of companies’ total internal cash flow are replaced with substitutive variable, companies’ total turnover. Factor variables’ lags length are not defined in the investment cash flow model. To

Journal number 3 ∘ Vano Benidze ∘

THE ECONOMICS OF HAPPINESS AND ALTERNATIVE MEASURES OF WELL-BEING

Expanded Summary Economist have been interested in the notion of happiness since the creation of the field of economics. In The “Theory of Moral Sentiments”, Adam Smith wrote: “Man was made for action - to exercise his faculties to promote changes in the external circumstances both of himself and others in ways that seem most favorable to the happiness of all” (Smith, 1759/1761, p. 187). Other renown 19th century economists often wrote about the relationship between happiness and economics (Malthus 1798/1968; Bentham 1776/2001). The role of happiness slowly lost its significance in the economic theory as the era of consumerism emerged in the 19th century and economists generally started to believe that increased wealth let to a greater happiness - a claim which, during that period, had almost become axiomatic. Later, in 1974, Richard Easterlin revisited the concept of happiness and was the first modern economist to investigate the relationship betwe

Journal number 3 ∘ Shorena Tsiklauri ∘

POPULATION AGEING AS A DEMOGRAPHIC TRAP OF THE COUNTRYS ECONOMY IN GEORGIA

Summary Demography has great influence on the economic development of the country and its welfare.The increasing numbers of population is positively reflected on the economy, although it can have a negative character by reducing demographic dividends. This situation is a challenge for the modern Georgia, where economic well-being will be triggered by the aging. The purpose of this article is to analyze the expected outcomes of population ageing in Georgia. Kay words: Ageing, Demographic Trap, Economic Development. Introduction Population aging, one of the most visible effects on the demographic transition, had taken place in all industrialized world over the past century and it has evolved into a global phenomenon, affecting more and more newly developed and developing countries (Bengtsson & Scott, 2010). The modern stage of demographic development is characterized by decrease fertility and increase life expectancy, resulting in aging population. At present, develop

EKONOMISTI The international scientific and analytical, reviewed, printing and electronic journal of Paata Gugushvili Institute of Economics of Ivane Javakhishvili Tbilisi State University

DOI: 10.36172/EKONOMISTI E ISSN 2346-8432 Print ISSN 1987-6890	Journal number 3 ∘ Vladimer Papava ∘ Vakhtang Charaia ∘ ON THE NECESSITY OF MODIFICATION OF THE INFLATION INDEX FOR THE RELATIVELY POOR WORLDS AND GEORGIA’S EXPERIENCE Summary The inflation index fails to fully reflect the expectation of the poor part of the population, because some of the commodity groups (e.g. electronics, cars, furniture, hotel and restaurant services, etc.) do not reflect the problem of the low-income population. Using the inflation index alone cannot guarantee successful decision-making. Under these conditions, a logical question arises concerning the kinds of problems which might occur when the main goal for a central bank’s monetary policy is only to retain price stability. This is known as inflation targeting. It should be mentioned that the NBG (starting from 2009), like the central banks of Georgia’s main trade partner countries (Turkey, Russia, Azerbaijan, Belarus, etc.), has already been exercising inflation targeting for years. Central banks employing inflation targeting frequently justify their decisions to do so and state that they have reached not only their desired target (price stability) but have a Journal number 3 ∘ Alfred Kuratashvili ∘ "MECHANISMS" OF IMPOVERISHMENT OF PEOPLE BY FINANCIAL-CREDIT ORGANIZATIONS AND THE NECESSITY OF THEIR ERADICATION Expanded Summary The problem of preventing and eradicating the unlawfully "legalized" criminal acts of commercial banks and other financial and credit organizations, manifested in the use of veiled fraudulent mechanisms that lead to robbery, impoverishment and enslavement of a huge number of people is currently very relevant. The topic of this research is determined and justified It is precisely by the need to prevent and eradicate the unlawfully "legalized" criminal acts of commercial banks and other financial and credit organizations that lead to robbery and impoverishment of people - leading to robbery and impoverishment of the people. The analysis of the latest research leads to the necessity and fundamental importance of research and solving the problems of preventing and eradicating the unlawfully "legalized" criminal acts of commercial banks and other financial and credit organizations towards the people, aimed at enriching financial and credit organizations by robbing Journal number 3 ∘ Rozeta Asatiani ∘ Priorities and General Strategy of Georgias Economic Development Summary Effective development of Georgia’s economy significantly depends on the correct direction of socio-economic processes in the country and integrated assessment. In Georgia, for the right direction of economic reform (which is too long drawn), it is necessary to know what riches the country has, what kind of wealth and quantity we have, how we use it, where it is distributed and so forth. For this, all kind of Georgia’s wealth should be properly listed and analyzed. At the same time, if we really want to move to a market economy (about which we have already been shouting for 25 years, whereas a number of countries spent this period of time to obtain the status of the “Asian tiger”), it is necessary to take the pulse of the world economy which will serve as a compass for us. It is impossible to judge about such extremely topical and burning issues, the future of Georgia, the priorities of her development and general strategy based on emotions, without taki Journal number 3 ∘ Givi Lemonjava ∘ EFFICIENCY OF IMPLEMENTATION MECHANISMS OF MONETARY POLICY IN GEORGIA Expanded Symmary The power and rapidity of the monetary politics influence to the economics are depending on numerous of factors. Among those the most important things are the extent of financial sector development and dollarization level. Besides the banking sector in Georgia financial sector, its all the rest components, are faintly developed. Especially the capital market development level is very low. Its influence to the capital and cash flows is almost identically zero. In addition, because high level of dollarization , it is too weak the money markt instruments development scale. The monetary policy has to function in a such environment, which results depend upon the efficiency of the transmission mechanisms of monetary policy. The aim of this paper is to check the hypothesis of monetary policies transmission mechanisms influence of price inflation. The Committee of Georgia National Monetary Policy establishes the short term rate Journal number 3 ∘ Besik Bolkvadze ∘ ABOUT SOME PROBLEMATIC ISSUES OF THE BUDGETARY POLICY (Expanded Summary) The article is dedicated to the most important issues of the country’s public finance as follows: frequency of budgetary changes, program budgeting, budgetary planning and analysis of its fulfillment, public budget considerations, quarterly breakdowns, distribution of budgetary assignments, projection of capital flows, reserve funds, change of budgetary remaining amount. The work suggests author’s opinions towards abovementioned problematic issues. At every stage of economic development of the country, as it is well known, the key priorities of the economic policy, in the sphere of public finance, are fiscal decisions and their effectiveness that are depicted in the implementation of the budgetary policy. Rational budgetary policy is to be directed towards the economic grows and sustainable development, on the one hand, and at the same time it must provide sound business environment with the keeping of relevant budgetary-taxation mechanism, on the other Journal number 3 ∘ Anzor Kuratashvili ∘ SOCIALLY ORIENTED MARKET ECONOMY AND THE CRITERION OF EFFECTIVENESS OF INTERNATIONAL BUSINESS Expanded Summary Socially oriented market economy, along with the defining economic goal of market relations, assumes a social orientation of the market-economic system, which is an indicator of the essential nature of a socially-oriented market economy and its defining specific feature. In this regard, absolute scientific, political and practical interest is the study of problems of a socially oriented market economy, and on this basis - the study of international business problems and international economic relations in general, and, in particular, the definition of the criterion for the effectiveness of international business. This is the reason for the fundamental importance and relevance of this research topic. The analysis of scientific research indicates that in fact there are no scientific papers in which the problems of international business and international economic relations as a whole would be considered taking into account the functioning of a socially oriented marke Journal number 3 ∘ Vakhtang Chkareuli ∘ ESSENTIALS OF ECONOMIC FREEDOM AND ITS INFLUENCE ON ECONOMIC DEVELOPMENT (EMPIRICAL STUDY ON THE CASE OF GEORGIA) Summary In this paper, we will investigate the most essential ingredients for strengthening and developing economically free environment. There is shown a systemic link between economic freedom and economic growth on the case of Georgia. Our empirical results, based on different econometric modelling techniques reveal positive relation between economic freedom and real GDP growth. Key Words: Economic Freedom, GDP Growth, Private Property, Corruption, Fiscal Health. Introduction - The Concept of Economic Freedom For to be free is not merely to cast off one’s chains, but to live in a way that respects and enhances the freedom of others - Nelson Mandela (Long Walk to Freedom) Freedom is equally necessary condition for success in life, society and business. It is one of the basic needs of every individual and has a key role for human, social, economic and political development. In its broad understanding, freedom means the existence of choices. When we are forced to Journal number 3 ∘ Tsotne Zhghenti ∘ INSTITUTIONAL GROUPS IN GEORGIA AND TRANSITION/POST-TRANSITION ECONOMIES Summary The institutional development is one of the actual topic in economic science. New trends and direction of institutional development is depended on its structure and framework. Transformation of institutions is important topic for every economy, especially for developing countries. First research goal is to measure a size for each institutional type transition/post-transition countries and compare to the Georgian economy. Considering both dimension of institutional structure (formal vs informal, internal vs external) we get four types of institutions. Using Global Competitiveness indexes it can be calculated size of each institutional types. Second aim of research is to determine interactions between institutions. We can use statistical methods to evaluate interactions between different types of institutions. Keywords: Formal Institutions, Informal Institutions, Internal Institutions, External Institutions, Transition Economy, Georgian Institutional Development. Introduction& Journal number 3 ∘ Nino Zhorzhikashvili ∘ Macroprudential Policy and its Effective use Problems ( European experience) Resume The global financial crisis of 2008 once again raised the issue of more active use of macroprudential policy, as it was revealed that the microprudential policy and its regulations were not sufficient for financial stability. Macroprudential policy-policy that focuses on the regulation of the entire banking system, which includes the identification of the systemic and financial risks and aims to eliminate economic losses at a minimum level , monitoring and control, pursuing the regulatory and countercyclical policy in financial sector to ensure economic stability. The purpose of the Macroprdential Policy is to increase the sustainability of the financial system towards endogenous shocks to limit financial imbalance and to minimize macroeconomic expenses caused by financial instability. To do this, it is necessary to carry out countercyclical policy and to prevent risks in this regard. Effective implementation of the macroprudential ap Journal number 3 ∘ Giorgi Miqeladze ∘ EMPIRICAL REALIZATION OF INVESTMENT CASH FLOW MODEL (CASE OF GEORGIA) Expanded Summary The article empirically tests R. Kopke’s investment cash flows model according to Georgian economy. During empirical realization of the model problems of lack of information or non-existent data are resolved by different economic methods (using Substitutive variables, estimation data of other econometric model and etc.). Empirical model’s dependent variable is Georgia’s total real investment as factor variables are Georgia’s total real capital, companies’ turnover and their lagged values. Because of lack of empirical information about Georgia’s total capital, indicator values are estimated according L. M. Koyck’s private modification of investment accelerator model. For the same reason in the model factor variable of companies’ total internal cash flow are replaced with substitutive variable, companies’ total turnover. Factor variables’ lags length are not defined in the investment cash flow model. To Journal number 3 ∘ Vano Benidze ∘ THE ECONOMICS OF HAPPINESS AND ALTERNATIVE MEASURES OF WELL-BEING Expanded Summary Economist have been interested in the notion of happiness since the creation of the field of economics. In The “Theory of Moral Sentiments”, Adam Smith wrote: “Man was made for action - to exercise his faculties to promote changes in the external circumstances both of himself and others in ways that seem most favorable to the happiness of all” (Smith, 1759/1761, p. 187). Other renown 19th century economists often wrote about the relationship between happiness and economics (Malthus 1798/1968; Bentham 1776/2001). The role of happiness slowly lost its significance in the economic theory as the era of consumerism emerged in the 19th century and economists generally started to believe that increased wealth let to a greater happiness - a claim which, during that period, had almost become axiomatic. Later, in 1974, Richard Easterlin revisited the concept of happiness and was the first modern economist to investigate the relationship betwe Journal number 3 ∘ Shorena Tsiklauri ∘ POPULATION AGEING AS A DEMOGRAPHIC TRAP OF THE COUNTRYS ECONOMY IN GEORGIA Summary Demography has great influence on the economic development of the country and its welfare.The increasing numbers of population is positively reflected on the economy, although it can have a negative character by reducing demographic dividends. This situation is a challenge for the modern Georgia, where economic well-being will be triggered by the aging. The purpose of this article is to analyze the expected outcomes of population ageing in Georgia. Kay words: Ageing, Demographic Trap, Economic Development. Introduction Population aging, one of the most visible effects on the demographic transition, had taken place in all industrialized world over the past century and it has evolved into a global phenomenon, affecting more and more newly developed and developing countries (Bengtsson & Scott, 2010). The modern stage of demographic development is characterized by decrease fertility and increase life expectancy, resulting in aging population. At present, develop