An Initial Key Evaluation of The Strategic Interaction Between Macroeconomic Policies in Albania

Monetary and fiscal policy constitutes principal macro-policies, even though they are usually designed and implemented with quite different sometimes even contrary goals. Although they have a certain degree of independence mostly in the institutional basis, there is also a considerable level of interdependence between them. This one is usually found in the literature with the term “interaction” and then “harmonization” when the country operates within a monetary union. The first objective of this paper is to shortly identify main elements of the interaction between macro-policies. The second objective is to evaluate this mutual interaction among them for the Albanian case with historical data using each policy reaction function in a non-simultaneous way. Related to the methodology, there will be a descriptive comparative analysis of various economic variables indicating ways of interaction between monetary and fiscal policy also with revisiting their instruments and coordination after the crisis. Following this theoretical approach, there will be an evaluation on the mutual interaction, where the methodological approach of the latter relates to game theory generally analyzing decision situations. The first results of this work relate to the stabilizing effects of monetary and fiscal policy. The other results will rely on the changes of one policy as a response of changes in the other. If this one is statistically approved, we can confirm a presence of strategic interaction between the two macro-policies. All above mentioned elements will shed light on some first theoretical and empirical findings for Albania contributing to a further research debate and work in the field.