A Macroprudential Policy Framework for Albania

Abstract This paper discusses a framework for macroprudential policy in Albania, which is a foundation stone for ensuring financial stability role of a central bank. It focuses the way the macroprudential policy framework should be designed in a small and open economy like Albania. Based in the experience of the Albanian’s financial system during the last two decades it provides the definition of macroprudential policy and its objectives. The paper argues that the establishment of the macroprudential framework in a bank-based economy with a relatively simple and small financial sector that is controlled by foreign banks, the phenomenon of procyclical behavior should be stand priority, but structural sources of systemic risks and associated instruments should be discussed as well. The paper suggests that strategic document of Macroprundence for Albania should be developed covering three main directions: i) development of new methodologies for measuring systemic risk and effective regulatory and supervisory framework; ii) improvements in internal organizations of Bank of Albania, as the macroprudential authority, and its cooperation tools with other authorities; iii) improvements in the macroeconomic policy and environment