Monetary Policy in Albania 2006-2015

Abstract

The current paper presents a review which aims at recognizing the positive developments in the monetary policy in Albania for the period 2006 - 2015. The focus is on exploring the monetary policy in Albania - the way it is designed, approved and implemented, accomplishing the main objective of the Central Bank - Bank of Albania - to achieve and maintain price stability. Attention is paid to three main aspects: 1) a theoretical framework that guides the design of monetary policy in terms of the legal framework and decision-making body, the intermediate and operational objectives, the monetary variables of economy – the money supply, interest rates and exchange rates, framework of instruments employed to implement the monetary policy; 2) an amendment to the theoretical framework and approaches adopted for the selected period; 3) performance of the targeted variables. Research is divided into three main pillars. The first one is focused on short representation of the country and its macroeconomic framework. The second part aims at examining Albanian monetary policy in terms of the theoretical framework for the period of 2006 - 2015. The purpose of the third part is to follow up the amendment to the theoretical framework and approaches for the selected period and the performance of targeted variables. The research showed, in terms of the monetary variables in the economy, that the Bank of Albania has implemented and maintained a free-floating exchange rate regime and price stability inflation rate at 3 per cent with fluctuations of Ѓ} 1 per cent for the observed period. Fundamental change is seen in intermediate and operational objectives where the Bank of Albania targets the adoption of more advanced forms. The choice of intermediate and operational objectives depends on the monetary policy regime and the level of economic and financial market development. For the period 2006 - 2008, the Bank of Albania has approved the annual growth of money supply (M3); net domestic assets; and net international reserves. After year 2009 the bank’s priority has been to steer shortterm interbank rates close to the Bank of Albania’s key interest rate. A significant step is made in this regard - instruments such as repurchase agreements, outright transactions, foreign exchange market operations, overnight deposit, overnight loan are employed to achieve the objective.