Expanded Summary

In the following article the influence of monetary shocks on Securities and real estate market on the example of Georgia is discussed. Examination of impulse response functions within the Vector auto-regression model has been carried out for that. Two types of models were used during the research. An insufficient number of observations on key variables was the reason for separation of the models.

According to research money supply shock has no important influence on Securities Interest Rates and we can speak about only its importance during short-term period but influence of money supply during medium and long-term period is limited. According to research influence of money supply shock on real estate price index is also important. Above mentioned completely refers to the idea in economic theory about encouraging economics by money supply during short-term period where  real estate market is not the exception.

Data and econometric model:  Two types of models were used during the research. An insufficient number of observations on key variables was the reason for separation of the models. The first model includes quarterly highlights [1] in 2007-2015 and the second model includes quarterly highlights in 2009-2015. The research is based on examination of impulse response functions within the Vector auto-regression model.

The first model:

The second model:

where Y_t is endogenous variables vector, Z_t is exogenous variables vector, E_t is residual member vector.

The following time series[2] were used for endogenous variables: Gross Domestic Product (GDP); Consumer Price Index (CPI); real interest rates of average loans quarter in national currency (R); Real Exchange Effective Rate ( REER ); consumption of family farming in real image[3] ( RC ); index of real estate prices[4] (AP); Interest rates on government securities (GR); three indicators were used for describing money supply indicator: complementary money (CC); monetary aggregate (M3); monetary aggregate (M2); . sum total  (TR) of natural transfers (current and capital) received from abroad (Y_tr) and factor income received from abroad

was used as  exogenous variable. Mentioned indicator was used because in our opinion this variable was the most determining national economic conjuncture for the evulation period, at the same time this is the most exogenous factor and an important foreign shock characteristic.

While analyzing quarterly data seasonality is an important question. In the following work all the variables are corrected according to season. Consequently all the data was tested on exsiting seasonal component by using method  X12[5].

Several tests were used for analyzing stationery question: augmented Dikkey-Fuller (ADF); Phillips-Peron (PP);  Dikkey-Fuller (DF-GLS), Kviatkovski-Phillips-Schmidt-Shin   (KPSS) tests. At the same time stationery of time series was tested on seasonly uncorrected and unfiltered time series[6].

Impulse response functions of real estate price index of monetary aggregates (CC, M2 and M3) is statistically important. Decomposition of real estate price index variation shows that changes in the money supply aggregates variation is very important in variation of real estate price index. At the same time the process of dynamic equilibrium is unstable and its influence on different models  after different time lag reaches its maximum and index with its main fluctuations are returned to equilibrium value.

Conclusions:

Therefore  in the following article according to research the following conclusions are made:

• Money supply shock has no important influence on Securities Interest Rates and we can speak about only its importance during short-term period but influence of money supply during medium and long-term period is limited.
• According to research influence of money supply shock on real estate price index is also important. Above mentioned completely refers to the idea in economic theory about encouraging economics by money supply during short-term period where  real estate market is not the exception.
• According to research monetary shocks have stronger influence  on real estate index than gross output that can be interpreted  as high-prone of investment in real estate market in Georgia, rather than in other economic sectors that is caused by institutional restriction and underdevelopment of financial markets.
• It should be noted that consequences of the first and the second models are different, however, the reason must be caused by inferiority of models. We consider that the second model gives more information about money market influence on real estate price index . Consequently, we can conclude that the growth of monetary aggregates in the initial stages significantly increases real estate price index, however the shock for quite a long period of time[7] is the reason for dynamic instability on real estate market.