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Inflation and Stabilisation in Albania

  • Sulo Haderi
  • Harry Papapanagos
  • Peter Sanfey
  • Mirela Talka

This article analyses the determinants of inflation in Albania during the transition period. We attempt to explain why Albania was successful in reducing inflation, by the end of 1995, to a level comparable to many countries in the European Union. We discuss the relative importance of monetary, fiscal and external variables, and we highlight the role of remittances by emigrants. Using vector autoregression analysis, we demonstrate how shocks to money growth and remittances affect the subsequent paths of inflation and the exchange rate. Our main conclusion is that, while there are important lessons from the Albanian experience for other ex-communist countries, the presence of large-scale emigration and huge remittance flows makes Albania unique among European countries in transition, in the extent to which these factors aided the anti-inflation programme. However, recent events have demonstrated that political stability and control of the informal financial sector are also crucial for low inflation.

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Article provided by Taylor & Francis Journals in its journal Post-Communist Economies.

Volume (Year): 11 (1999)
Issue (Month): 1 ()
Pages: 127-141

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Handle: RePEc:taf:pocoec:v:11:y:1999:i:1:p:127-141
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  1. Calvo, Guillermo A & Vegh, Carlos A, 1995. "Fighting Inflation with High Interest Rates: The Small Open Economy Case under Flexible Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 49-66, February.
  2. Rudiger Dornbusch & Stanley Fischer, 1986. "Stopping Hyperinflations Past and Present," NBER Working Papers 1810, National Bureau of Economic Research, Inc.
  3. Stanley Fischer & Carlos A. Végh Gramont & Ratna Sahay, 1996. "Stabilization and Growth in Transition Economies; The Early Experience," IMF Working Papers 96/31, International Monetary Fund.
  4. Bruno, Michael & Easterly, William, 1995. "Inflation crises and long-run growth," Policy Research Working Paper Series 1517, The World Bank.
  5. Vegh, Carlos, 1991. "Stopping High Inflation: An Analytical Overview," MPRA Paper 20175, University Library of Munich, Germany.
  6. Thomas D. Willett & Fahim Al-Marhubi, 1994. "Currency Policies for Inflation Control in the Formerly Centrally Planned Economies," The World Economy, Wiley Blackwell, vol. 17(6), pages 795-815, November.
  7. R. B. Johnston & Piroska Mohácsi Nagy & Roy Pepper & Mauro Mecagni & Ratna Sahay & Mario I. Bléjer & Richard Hides, 1992. "Albania: From Isolation Toward Reform," IMF Occasional Papers 98, International Monetary Fund.
  8. Ratna Sahay & Carlos A. Vegh, 1996. "Inflation and stabilization in transition economies: An analytical interpretation of the evidence," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(1), pages 75-108.
  9. Sachs, Jeffrey D, 1996. "Economic Transition and the Exchange-Rate Regime," American Economic Review, American Economic Association, vol. 86(2), pages 147-52, May.
  10. Carlos A. Végh, 1992. "Stopping High Inflation: An Analytical Overview," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 626-695, September.
  11. Peter J. Montiel, 1989. "Empirical Analysis of High-Inflation Episodes in Argentina, Brazil, and Israel," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 527-549, September.
  12. Richard Layard & Ansgar Richter, 1994. "Who Gains and Who Loses from Russian Credit Expansion," CEP Discussion Papers dp0200, Centre for Economic Performance, LSE.
  13. Aslund Anders, 1994. "Lessons of the First Four Years of Systemic Change in Eastern Europe," Journal of Comparative Economics, Elsevier, vol. 19(1), pages 22-38, August.
  14. Ahmet Mancellari & Harry Papapanagos & Peter Sanfey, 1996. "Job creation and temporary emigration: the Albanian experience," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(2), pages 471-490, October.
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