Monetary Programming in Albania

Fiqiri Baholli,Fehmi Azemi

doi:10.5901/ajis.2016.v5n3s1p171

Abstract

The development of every country is supported in formulation and implementation of macroeconomic program. Policies are formulated to correct disequilibrium between aggregate supply and demand, misbalances shown in the balance of payments, price increase and low increase of national product. An important part of this process is monetary programming as a main duty for the Bank of Albania. The object of this article is to prove the indicator that can be easily monitored to follow up the operational actions of the Bank of Albania aiming the achievement of main objective. On the economic analysis presented on this article we explain if the monetary aggregates could be used as operational objectives. Friedman (1998) suggests that timing and relations with main objectives are key elements for monetary aggregates. McCallum (1999) that the identification of monetary aggregates is added value on the framework of monetary policy formulation. Econometric analysis consists on the models realized to explain and test the relations of the monetary aggregates with macroeconomic indicators. Models are drafted based on three hypothesis. Other objectives of this study are related to brief analyses on the monetary policies compiled and realized from the Bank of Albania. Also through regression analysis we will show the relations of monetary aggregates and their impact on macroeconomic indicators, such as Gross Domestic Product and Consumer Prices Index. DOI: 10.5901/ajis.2016.v5n3s1p171

Highlights

The econometric analysis consists on the models prepared to explain and test the relations of monetary aggregates with macroeconomic indicators (GDP and Inflation)
If inflation increases with 1%, it is expected that M1 increases with 559 ALL ar the same period
Money supply defined through monetary aggregates has correlations with macroeconomic indicators such as Gross Domestic Product (GDP) and inflation measured with Consumer Price Index

Summary

Objectives of the Study

Increasing the GDP and lowering inflation rates has proved to direct most of the developed and less developed economies toward sustainable strengthening of economic growth. The framework of monetary programming includes and is realized through: - Main objectives (inflation control, economic growth, stable Balance of Payments); - Intermediary targets (growth of money supply); - Operational benchmarks (reserve money) controlled with monetary policy instruments. Main objective of the study is to prove, which is the best indicator that should be monitored to control the operations of central bank. These operations are organized to ensure the financial stability of the country and the achievement of its main objective – price stability. Other objectives of this study are related to brief analyses on the monetary policies compiled and realized from the Bank of Albania. Through regression analysis we will show the relations of monetary aggregates and their impact on macroeconomic indicators, such as Gross Domestic Product and Consumer Prices Index

Hypothesis and Research Questions

To test first hypothesis are prepared model for M1

The second hypothesis

Main Findings

Recommendations