On January 29, ISET was pleased to host Prof. Michael Beenstock for a seminar-workshop. Prof. Beenstock is the author of ten books on topics including time series and spatial econometrics, macroeconomics, the global economy and economic development, as well as writing more than 100 refereed journal articles. He presented the preliminary findings of a research project entitled “The Puzzle of Economic Development without Rural-Urban Transition in Georgia.” The project was undertaken by the Shota Rustaveli National Science Foundation and an ISET research team.

“Manchester is known for two things: 1) Manchester United and Manchester City, 2) I was born in Manchester,” said Prof. Beenstock at the very beginning of a presentation. The third point fame for the city, which is more important for Economic Science, is Victoria University of Manchester. Here, Arthur Lewis wrote his seminal work in Development and Growth Economics for which he was awarded the Nobel Memorial Prize in Economics in 1979. Lewis provided a structural theory of economic development which explained the correlation between urbanization and development in the past, and which would also predict it in the future. The Lewis and Harris-Todaro (Harris and Todaro 1970) models have become canons of textbooks on development economics, and rural-urban transition is now regarded as an inevitable and ubiquitous consequence of economic development.

On Wednesday January 23, ISET hosted the Governor of the National Bank of Georgia (NBG), Mr. Koba Gvenetadze. Mr. Gvenetadze delivered a profoundly informative lecture about the importance of monetary policies for economic well-being, discussing issues such as the importance of the price stability objective, inflation targeting frameworks (specifically why it is so crucial to avoid both deflation and high inflation), and the efficiency of monetary policy transmission mechanisms under a flexible exchange rate.

Since Milton Friedman, in his Presidential Address to the American Economic Association, presented a clear description of the role of monetary policies, economists (theorists and policymakers) have concentrated on studying the importance of price stability as a primary objective of monetary policies, and designing an optimal policy to achieve it. The economic costs of high and unstable inflation can be enormous. First, high inflation creates uncertainty in prices and distorts price signals, which leads to the inefficient allocation of scarce resources. Secondly, uncertainty related to high and volatile inflation complicates long-term planning, which forces businesses to invest in short-term projects, instead of investing in more productive long-term activities. Thirdly, lower inflation reduces interest rates and contributes to financial stability. However, moderate inflation is a result of economic growth.

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