Academic journal article Academy of Strategic Management Journal

Modern Challenges of Monetary Policy Strategies: Inflation and Devaluation Influence on Economic Development of the Country

Academic journal article Academy of Strategic Management Journal

Modern Challenges of Monetary Policy Strategies: Inflation and Devaluation Influence on Economic Development of the Country

Article excerpt

INTRODUCTION

Among the last economic reforms implemented for overcoming of the world financial and economic recessions the special emphasis is made to macroeconomic stabilization (Abuselidze, 2018a) and socioeconomic strengthening of the country is recognized one of the imperatives, what cannot be well-reasoned without monetary policy. Operation of Monetary policy plays the important role in promotion of economic activities and growth of production volume, further socioeconomic development of the country.

Because of recent developments in the world, we can say that today the main players are not the governments of the countries, but the national banks and action programs developed by them. Starting from the beginning of current year, the monetary policy carried out among important trade partners by central bank of Georgia, served two main purposes: on the one hand, to encourage activities of weakened economy and on the other hand, to prevent the inflationary processes caused by depreciation of the local currency.

LITERATURE REVIEW

The molded approach is kept in the world's leading development economies to support economic activity and to increase the level of inflation to the targeted index. There is a different situation in most of developing countries, where local currency depreciation causes inflationary pressure and generates necessity of strict policy. It is phenomenon that we are fighting against inflation and at the same time we are cautious, since its opposite occurrence deflation has no less destructive effect for the economy. This is a bit paradoxical, but that is exactly the difficulty of monetary policy. Perhaps the way out of this difficult situation would be a golden midpoint, but finding it is very difficult, as well as maintaining.

If we agree to 1996 Nobel Prize laureate in economics, Robert Lucas, we should say that this phenomenon is much more trouble for society than unemployment, since unemployment is harmful for those who do not work when the inflation affects whole society (Forbs, 2013).

It is natural that inflation, due to its negative outcome, is causing negative emotions in society. Negative aspects of high inflation are: expenditure increases, that has strong influence on whole society and especialy low-income families; decrease of purchasing power of national currency; real profit decrease in business; production volume decrease; unemployment increase; increase of interest rates, which increases the credit, which results in disability of small farmers getting loans. All of these increases the number of bankrupt enterprises and exacerbates economic crisis; at the same time, if the level of inflation is higher in the country, than in its trade partner countries, the product competitiveness is falling, that hinders the growth of the economy. The necessity of regulating the inflation process has led to an interest in this issue.

METHODOLOGY

The research methodology includes the the following stages: theoretical discussion-reviewing the theories about inflation processes, analysis of the practice-inflational processes' review in dynamics, approval of hypothesis-justification of the conclusions by practical examples and statistical data. In this top-down study the empirical material is collected from official documents and public statements made by centrally placed politicians and administrators in Georgia. Furthermore as well as research conducted by international organizations in Georgia.

The research database is the legislative and normative acts adopted by the Georgian government at the modern stage, the National Statistics Office of Georgia, the Economic Development and Finance Ministries, the National Bank Georgia and other departments.

We have used opinions of Georgian scientist and economists about inflational processes, as well as economic periodicals, newspaper articles, economists' reports, etc.

The study uses dynamic data from different countries (including the post-socialist countries, which are members of the EU), most studies would find Czech monetary policy as the most successful in establishing it credibility as well as raising forward-lookingness of inflation expectations, followed by Slovakia (now a Eurozone member), followed by Poland and Hungary (Arestis & Mouratidis, 2005; Baxa et al. …

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