Reducing Inflation: Lessons From Albania's Early Success

IMF Working Papers, May 1, 1998

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Reducing Inflation: Lessons From Albania's Early Success

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Bibliographic details

• Authors: C. McNeilly, Doris Schiesser-Gachnang
• Published: May 1, 1998
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451956313.001

Overview

• Inflation in Albania fell rapidly once comprehensive stabilization policies and market-oriented reforms were launched, in contrast to other transition economies where price liberalization was generally followed by persistently high inflation.
• The early reduction of underlying inflation is confirmed by trimmed mean estimates of core inflation, which use a central portion of the commodity-wise inflation distribution.
• Estimating core inflation is demonstrated to be useful for transition economies.
• The early success in curbing inflation is attributed to the extremely broad scope of initial price liberalization coupled with key supporting measures.
• The experience gives hope for early recovery from Albania’s 1997 economic crisis.

Key Findings

• Rapid fall in inflation in Albania following comprehensive stabilization policies and market-oriented reforms.
• Contrast with other transition economies: price liberalization elsewhere was generally followed by persistently high inflation.
• Trimmed mean estimates of core inflation confirm early reduction of underlying inflation.
• Usefulness of core inflation estimation methods for transition economies emphasized.
• Early success attributed to extremely broad scope of initial price liberalization plus key supporting measures.
• Implication: potential for early recovery from the 1997 economic crisis in Albania.

Methodology and Measures

• Core inflation measured using trimmed mean estimates that use a central portion of the commodity-wise inflation distribution.
• Focus on underlying inflation dynamics rather than headline measures alone.

Policy Implications and Recommendations

• Implement comprehensive stabilization policies alongside market-oriented reforms to reduce inflation rapidly.
• Employ broad price liberalization combined with supporting measures to enhance effectiveness.
• Use trimmed mean/core inflation estimation techniques in transition economies to monitor underlying inflation and inform policy.

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• Reducing Inflation: Lessons from Albania's Early Success - WP/98/78
  • Reducing Inflation: Lessons from Albania's Early Success - WP/98/78 (Markdown version)
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