Increasing demand of analysts, decision-makers, market agents and the broad public for timely economic information and the ability of these indicators to hint business cycle turning points, have made them very common and useful. The peculiarity of these indicators is that they reveal information on the tendency of various economy indicators, based on qualitative opinions of businesses and consumers. The Bank of Albania has been working for several years to construct these indicators, based on the results from large-scale surveys conducted with 720 businesses and 1200 consumers. The cooperation with global leaders in this area has been very efficient. Experts from the German Institute of Economic Studies have supported the process of methodological and economic analysis of business confidence indicators. While working for this project, Bank of Albania’s experts have studied and applied important aspects of contemporary methodologies followed by the OECD countries and by the European Commission. Until coming to the decision to publish them, researches and tests have been constantly carried out on the developments, suggested by these indicators and later on verified by the statistics of the INSTAT. The compliance degree of the tendencies from both sources is assessed as statistically significant, thus making them useful. Various methodologies and empirical findings have been introduced in technical round tables, and in working papers and articles compiled by the Bank’s experts. For more than four years, the results revealed by these indicators have been more and more taken into consideration by Bank of Albania’s decision-making, thus contributing to the building of inflation expectations indicator.

Protecting the financial system with strong financial supervision and stricter limits on leverage, so as to prevent the use of foreign capital for financial gymnastics. In my view, the first two of these are either unfavourable or unfeasible for Iceland. Capital controls are costly from a social welfare perspective, especially in small countries that are reliant on cross-border trade – be it trade in goods, in services, or in capital. Capital controls can also give rise to oligopoly in the financial markets, as well as leading to inefficient price formation and causing persistently high interest rates. Imposing capital controls has to be considered the last resort – a line of defence to be reserved for when financial stability is under threat. And after having seen the responses of individual countries to the COVID-19 pandemic, I have little confidence in international coordination of monetary policy. Applying macroprudential tools and financial supervision in a system-wide context therefore entails weakening the incentives for short-term capital to flow into the economy, and preventing the capital flows that do occur from upending the system. In this way, we can create stronger foundations for independent monetary policy in small open economies. We need revetments, not restrictions. Actually, I do believe that large international reserves and systematic use of the central bank balance sheet can give small economies a certain flexibility to set their own monetary policy by leaning against movements in the capital account, as we have done here in Iceland.