Influence of inflationary tax on the regional economy of Georgia and the national bank's monetary policy

Abstract

Georgian economy is facing many challenges, including the high degree dependency of the consumer market on the import and inflation caused by the depreciation of the national currency. Such situation has become permanent and has acquired the function of hidden tax burden, which significantly delays the development of the real economic sector of the region. The aim of the research is to identify the influence of inflationary tax on the regional economy and their connection with monetary policy, to analyse the inflationary targeting mechanism, to identify the specifics of anti-inflation regulation and the role of the National Bank in the process of price stabilization. Theoretical and empirical methods used in the article reveal that correlation between national currency depreciation against USD and inflation has established. The article highlighted that despite the monetary policy of the National Bank being implemented in the mode of inflation targeting and undergoing in the terms of a floating exchange rate, the inflationary pressures caused by the depreciation of the national currency continues to be, particularly, on the goods of the primary consumption. Bloomberg Electronic Trading System in order to determine the exchange rate doesn’t not function properly in the country. To ensure sustainable development of the economy, the National Bank should considerably improve the mechanism of exchange rate determination through the Bloomberg Electronic Trading System, and in order to reduce dependency on imports, it is crucial to elaborate mechanisms to develop and stimulate the production process based on the local resources.