Inflation in Transition Countries

University of Tirana
Faculty of Economics
Public Economics
Master EES Tirana

Discussion Paper

Inflation Dynamics in Transition Countries

Accepted by : Prepared by:

Prof. Dr. H.-Dieter Wenzel Blerta Gjergji
Bamberg University

Tirana : 1st   of June 2006

Contents

1. INTRODUCTION       03

2. INFLATION IN TRANSITION ECONOMIES       04

2.1. Characteristics of typical countries in transition       04

2.2. Albania in transition       07

2.3. Comparing Albania with other countries       10

3. AN OPTIMAL SOLUTION: INFLATION TARGETING?       13

4. MEASURING THE END OF TRANSITION       15

4.1. Comparing theory versus reality-When the transition is over?       17

5. CONCLUSIONS       18

1. INTRODUCTION

The aim of this paper is to explore dynamics of inflation in Albania in the period of relative macroeconomic stability also called transition.

It is very interesting to see how Albania has moved from a centrally planned economy to a market economy. In Albania, to a much greater extent than most other European transition economies, the transition process exacerbated difficulties in an economy that was already beleaguered in many respects, resulting in a massive increase in the unemployment rate,an overall decline in the economic activity accompanied by high inflation.

Severity of recessions varied among other   countries, especially those of Central and Eastern European who passed through transition like Albania which like Bulgaria and Romania emerged out of centrally planned economy.

Looking further back in the history these countries were characterized by a small economies but they had a rapid growth which is impressive from the fact that these countries didn’t the culture of market economy.

The purpose of this paper is to reveal which possible factors cause inflation development in these countries compared also to Albania and what was the possible solution... [continues]

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