Abstract:
The aim of this thesis is to analyze the monetary policy and inflation targeting applied by the
Bank of Albania on the road to Euro adaption. There will be a comparison with the monetary
policy used by the European Central Bank for the countries aiming to join the European
Union and it will be shown if the Bank of Albania’s monetary policy rules adapt those of the
ECBs. The data of inflation and exchange rates in the Albanian economy in 2005-2013 has
been used. Since the variables are non-stationary and present unit roots, Johansen’s cointegration
technique has been applied. This methodology has allowed for obtaining of a cointegrating
relationship among the variables in the long-run. The co-integration results
provide evidence of a no co-integration. This indicates that inflation and exchange rate does
not move together in Albania in the long-run. According to the test results, it can be said that
in the long-run foreign currency does not main cause of inflation in Albania.
