Epoka University, Master of Science in Banking and Finance

Abstract

This paper examines inflation and nominal exchange rate in Albania during this economical transition period including 1995-
1996 until 2010-2011 for Albanian economic system. Several channels through which inflation can affect wellness of Albanian citizen
and investigate the relationship on variables of the economy. Beginning from a low base years1996-97, Albania has quickly reached to
high GDP growth and decreasing inflation, in conjunction with serious efforts thought open-market reforms.So the aim is to investigate
the impact of consumer price change on exchange rate. How much does the inflation effect on the exchange rate, also we will discuss if
inflation has a significant positive or negative impact of exchange stability on real growth and it will analyze costs and benefits of
exchange rate stabilization in Albania during these 15 years. In this paper, an important role plays the effect of the exchange rate regime
on economic growth. As a whole, this literature is inconclusive mainly because there are theoretical channels highlighting a positive
effect of exchange rate stability on growth and others that stress the negative repercussions of exchange rate that has on output
expansion. The paper concludes that the inflation in Albania does not have much effect on nominal exchange rate and in other part the
association of exchange rate stability with higher real growth remains lusty. Exchange rate has different dependent variable in Albania.
This result will be proved and estimated a linear regression model key of macroeconomic variables.