Monetary Policy in Albania
Uploaded by MariaMelodi on Dec 08, 2011
Monetary policy
During transition the economy of Albania has been quite a surprise for many people. After the destruction of communist regime its economy managed to have a recognizable economic growth during 1991-1992 and even a rising GDP and a falling inflation in conjunction with serious market reforms.
In 1997 though, there was a tough social and political period which had its effects on the Albanian economy, because during this time the pyramidal schemes in which most of the population put their savings, collapsed. Even though having passed this period, Albanian economy did manage to enjoy afterward a constant economic growth even low inflation rates.
In order to keep the beat with this stabilization method, the need of monetary policy is of crucial necessity. Thus monetary policy is important not just to keep a stable interest rate but also the balance of money supply and prices. As mentioned before after the collapse of communisms it was obvious that the Albanian economy not only was in a case of hyperinflation and destabilization of markets but also in an extreme budgetary deficit. In 1993 the main objective of Albanian monetary policy seemed to be money growth supported by a fiscal policy and the objective of Central Bank to eliminate the deficit, by a tight credit policy. A two-tier banking system was also introduced during this period.
At the beginning of 1996 some licenses on private banking activity were issued to several foreign banks. This measure taken not only secured a consolidation of banking system but also allowed the usage of indirect instrument of money control. New private banks encouraged an inter-bank competition which is important in an economy. These methods taken by the Central Bank constantly helped the market. Till 2000, we can say that the transmission method used by Bank of Albania was by using indirect instruments to stable the economy, but afterwards the use of direct instruments was to be used, mostly the method of inflation targeting
It was mentioned before that from 1991 to 2000 Bank of Albania was directing the economy by implying indirect instruments of monetary policy to control and stable the markets. Four channels that operate in market economies are through: interest rates; credit ceilings; exchange rate; and inflation expectations. After 2000 the direct instruments were implied.
All in all we can say that the Albanian economy has moved over the last 13 years from almost complete isolation to relative...