Words of Wisdom:

"I'm toppin da list on 3 topics!!! search 'The war on iraq', "the state of the planet' and 'the pursuit of scientific knowledge'" - Golden

Inflation, Exchange Rates and the Role of Monetary Policy in Albania

  • Date Submitted: 12/08/2011 07:10 AM
  • Flesch-Kincaid Score: 32.8 
  • Words: 1995
  • Essay Grade: no grades
  • Report this Essay
Inflation, exchange rates and the role of
monetary policy in Albania

by
Marta Mu├žo (Anteon Corporation), Peter Sanfey (EBRD) and Anita Taci
(EBRD)
November 2003

Abstract
This paper examines the conduct of monetary policy in Albania during the transition
period. We identify various channels through which monetary policy can affect prices
and output and we assess their relative importance. Estimates from a vector
autoregression model (VAR) of key macroeconomic variables demonstrate the weak
link between money supply and inflation up to mid-2000. However, the move during
2000 from direct to indirect instruments of monetary control has helped to strengthen
the predictability of the transmission link from money supply to inflation. We
conclude by arguing that a move to formal inflation targeting could help promote the
transparency and credibility of monetary policy, but that such a move should be
introduced only when the country is ready for it.

1. Introduction
The performance of the Albanian economy throughout the transition period has been a
pleasant surprise to many people.1 Starting from a very low base in 1991/92, Albania
quickly entered on a path of high GDP growth and falling inflation, in conjunction
with the first moves towards serious market reforms. These achievements were
jeopardised but not permanently reversed by a period of turmoil and near-anarchy in
early-1997, when several large pyramid schemes, into which much of the population
had put their savings, collapsed.2 Since then, the Albanian economy has again enjoyed
high annual growth rates and low inflation. This combination has been achieved in an
environment where financial sector development is still at an early stage and informal
markets are flourishing. Therefore, the role of monetary policy in influencing inflation
and growth is inherently limited. Nevertheless, increasing attention is being paid in
Albania to the role of monetary policy, and especially to the...

Comments

Express your owns thoughts and ideas on this essay by writing a grade and/or critique.

  1. No comments