Tsotne Marghia - Academia.edu (original) (raw)
Address: Tbilisi, K'alak'i T'bilisi, Georgia
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Papers by Tsotne Marghia
The COVID-19 pandemic has led us to the need of choosing between short-term and long-term priorit... more The COVID-19 pandemic has led us to the need of choosing between short-term and long-term priorities. In order to conduct and evaluate effective policies, new types of models are required, that are able to incorporate both epidemiological and economic variables. The aim of this paper is to make practical use of theoretical framework in case of Georgia and lay the foundation for future research. The theoretical framework of the paper is based on the macroeconomically extended version of epidemiological SIR type model developed by Eichenbaum et al. (Eichenbaum, Rebelo, Trabandt, 2020). In the homogenous economic agent model human behavior determines the pidemiological situation in the country. Individuals are reducing the probability of infecting themselves by reducing consumption and labor supply. However, consumers do not take into account the possibility of them infecting others, thus creating the negative external effect. Therefore, these effects can be internalized using the cont...
Proceedings of the 39th International Academic Conference, Amsterdam, 2018
Standard stress tests consider only first round effect from macroeconomic variables to financial ... more Standard stress tests consider only first round effect from macroeconomic variables to financial stability indicators. However, the occurred shocks in banking sector reflect on macroeconomic indicators throughout different transmission mechanisms, such as expectations of economic agents, expected responses of banking sector to increased credit risk and etc. This creates the necessity of expansion and improvement of existing types of models, which will also include second round (macro-feedback) effects. The study explores the dynamic relationship between macroeconomic variables and indicators of financial stability, proving the relevance of considering second-round effects for better policy analysis. This paper develops a macro stress testing model incorporating feedback effects between financial system and the real economy. The study uses VAR approach to analyze various interactions between indicators through Impulse Response Functions (IRFs) and conducts different stress scenarios on exogenous variables. According to empirical results for the case of Georgia, there is significant relationship between real and financial variables, proving the countercyclical nature of NPLs with respect to different estimates of GDP gap. The signs of the impacts are robust with respect to different estimates of GDP gap. However, the magnitude of the effect of change in NPLs on GDP gap and vice versa varies with different estimate of GDP gap. In addition, using historical decomposition of GDP gap, the study shows that the effects of financial variables on variables of real economy differ from each other depending on the observed time interval (pre-crisis or post-crisis). The transmission of the impact goes though "credit crunch". The model proves the fact that change in NPL ratio strongly impacts credit growth represented as change in Credit to GDP ratio. At the same time, change in Credit to GDP ratio explain significant part of output gap forecast error and has significant contribution to business cycle fluctuations, strengthening the impact of NPLs and financial stability as a whole on the real economy. The estimated model can be used for generating different scenarios and shocks for improving systemic risk analysis (effect of banking sector's solvency on real economy) and for providing better policy recommendations.
The COVID-19 pandemic has led us to the need of choosing between short-term and long-term priorit... more The COVID-19 pandemic has led us to the need of choosing between short-term and long-term priorities. In order to conduct and evaluate effective policies, new types of models are required, that are able to incorporate both epidemiological and economic variables. The aim of this paper is to make practical use of theoretical framework in case of Georgia and lay the foundation for future research. The theoretical framework of the paper is based on the macroeconomically extended version of epidemiological SIR type model developed by Eichenbaum et al. (Eichenbaum, Rebelo, Trabandt, 2020). In the homogenous economic agent model human behavior determines the pidemiological situation in the country. Individuals are reducing the probability of infecting themselves by reducing consumption and labor supply. However, consumers do not take into account the possibility of them infecting others, thus creating the negative external effect. Therefore, these effects can be internalized using the cont...
Proceedings of the 39th International Academic Conference, Amsterdam, 2018
Standard stress tests consider only first round effect from macroeconomic variables to financial ... more Standard stress tests consider only first round effect from macroeconomic variables to financial stability indicators. However, the occurred shocks in banking sector reflect on macroeconomic indicators throughout different transmission mechanisms, such as expectations of economic agents, expected responses of banking sector to increased credit risk and etc. This creates the necessity of expansion and improvement of existing types of models, which will also include second round (macro-feedback) effects. The study explores the dynamic relationship between macroeconomic variables and indicators of financial stability, proving the relevance of considering second-round effects for better policy analysis. This paper develops a macro stress testing model incorporating feedback effects between financial system and the real economy. The study uses VAR approach to analyze various interactions between indicators through Impulse Response Functions (IRFs) and conducts different stress scenarios on exogenous variables. According to empirical results for the case of Georgia, there is significant relationship between real and financial variables, proving the countercyclical nature of NPLs with respect to different estimates of GDP gap. The signs of the impacts are robust with respect to different estimates of GDP gap. However, the magnitude of the effect of change in NPLs on GDP gap and vice versa varies with different estimate of GDP gap. In addition, using historical decomposition of GDP gap, the study shows that the effects of financial variables on variables of real economy differ from each other depending on the observed time interval (pre-crisis or post-crisis). The transmission of the impact goes though "credit crunch". The model proves the fact that change in NPL ratio strongly impacts credit growth represented as change in Credit to GDP ratio. At the same time, change in Credit to GDP ratio explain significant part of output gap forecast error and has significant contribution to business cycle fluctuations, strengthening the impact of NPLs and financial stability as a whole on the real economy. The estimated model can be used for generating different scenarios and shocks for improving systemic risk analysis (effect of banking sector's solvency on real economy) and for providing better policy recommendations.