Monetary Policy In Lithuania Case Study

Brilliant Essays
Register to read the introduction… After the separation, the country went through a number of economic difficulties due to the falling of the industrial infrastructure of the country and the economic stability the country enjoyed previously was lost. Thus, Lithuania had to gradually adopt open market policies and adopt the needs of the capitalist system. The country is one of the most successful countries to adopt open market reforms and improve their economic performance up until the time of the recession that the country faced most recently due to the global economic crisis. Due to the high import export orientation of the country and the fact that the economy was heavily dependent upon the greater European economy, the impact of the recession was felt greatly on the economy of Lithuania. However, the inherent factors and the gradual recovery of the economies of the Europe has given a lifeline to the Lithuanian economy and it is started a very modest growth currently. While the growth has returned, the scarce of the recession are deeply felt within the Lithuanian …show more content…
Key reasons of monetary policy

Lithuania is primarily trading with the Europe; the exports to EU are 65% of the total while the imports from the country remain around 58% (Government statistics, 2010). Thus, pegging the currency to Euro ensure that the import and exports have a stable price and the industries can account for their income and expenditure without considering the foreign exchange fluctuation related factors. This provides price stability to industries.

Further, Euro is generally a well managed currency unit and there are strict guidelines in place in maintaining financial discipline amongst the EU countries. Budget deficits, the interest rates and the inflation are few of these key areas which the country would have to manage to ensure the peg of Litas with
…show more content…
Impact on business cost structures

The cost structures in most of the high tech industries remain primarily fixed as they require heavy investments on R&D etc. Thus, the reduction of the demand from the Europe has resulted in a heavy blow on the Lithuanian industries. While the impact of maintained monetary policy was more stabilizing on these companies, due to lower demand for their products, the companies were suffering largely.

While some of the industrial manufacturers went bankrupt as they failed to maintain the demand for the products at a level which they can survive, other companies had to reduce costs in line with most of the other companies in Europe and North America. They were compelled to reduce less profitable operations, contain capital expenditure to only most necessary and reduce the workforce. Also, the credit availability of the companies was impacted negatively as most of the financial institutions did not provide extensive credit facilities to the industries in view it would be too risky.

However, in the long run, the surviving companies became leaner and profit oriented by cutting the excess costs that they had prior to the economic crisis.

6. Impact on the

Related Documents

  • Improved Essays

    one in the store. This is due to the fact that TheStore has trimmed the company employees down below an acceptable level for conducting normal business operations. The lack of employees has produced an initial increase in monetary savings but the prolonged effects of not having adequate employees will yield a large decrease in the revenues over an extended period Fd gqert q4tq gqert notice a lack of employees manning the store. If you have a question about a product arted a joke Which started the whole I st someone down to assist you with your inqucdtrt;qwerkqwe’r233343240234l’iry. Often times you will feel as if you are the only one in the store.…

    • 52230 Words
    • 209 Pages
    Improved Essays
  • Improved Essays

    During this time, the commercial banks’ behavior was not good, because it caused many countries to decline in growth and banks too have less profit. (Ritz & Walther, 2015, pp. 386-387). Let’s get deeper on what commercial banks mean, and how interest rate risk can manage using a commercial bank. Banks have earned their returns…

    • 860 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    For instance, too much money can create a greed that may harm someone in the long run, and corporate greed can be devastating. Corporate greed can result in loss of lives and business, so it is best to prevent it. According to a writer for the Internal Auditor, “‘The way to prevent acts of greed that negatively affect the company is to remove not the actor, but the attractiveness of the acts” (Jackson 34). The fast food industry is one of the greediest industries in the United States. For example, they generally pay their workers very little while the top executives earn huge amounts of money.…

    • 706 Words
    • 3 Pages
    Improved Essays
  • Great Essays

    The recession has had a huge impact on state and local revenues, and governments are being forced to cut back on essential services. Todays unemployment rate is a consequence of the shortfall of demand. It’s not high because of changes or workers not trying to find a job, its high because we are not producing anywhere near a normal level. The Great Recession has brought…

    • 1857 Words
    • 8 Pages
    Great Essays
  • Superior Essays

    Many industries move to other countries where the production cost is way less due to cheap labor and yields more profit. Another bog reason for unemployment is when the consumer demand for certain products goes so low that the company is not making any profit, hence they have to lay off workers in order to not loosing money for their company. From the idea of technology comes to play, why pay individuals the minimum wage when an electrical machine can do that job. When companies get to that mindset they start to lay off more and more people and let the machine do the job of the people in order to gain a better profit. Patrick, McGeehan on his article "Uncertainty for Workers Losing Jobs at Atlantic City Casinos” in New York Times mentions that casino in New Atlantic city is one of the major job sources for citizens living around the area.…

    • 1412 Words
    • 6 Pages
    Superior Essays
  • Improved Essays

    In some cases, Tax hikes did not improved budget balance as high earners primarily paid most of federal income tax burden. Tax hikes have a negative impact on economic activity of small business, driving them out of the market. Lacking of small business have plunge millions of job creation, draining the economic growth and have huge impact on struggling people such as minimum wage workers to lose their jobs. (Dubay,…

    • 1077 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Economies of scale: Economies of scale is an important entry barrier exists in an industry where economy is a determining factor. Monopoly is predominantly seen in industries where economies of scale exists i.e.., declining average costs with added firm size because only a few large firms or in extreme cases a single firm can sustain as they can achieve low average total costs. Examples of industries where monopoly is predominantly seen include steel, commercial aircrafts, computer operating software, etc. In such industries new businesses that try to enter the market are forced to be out of businesses by the monopolists who predominate the market by reducing the price. Monopolists can make profits even by reducing the price because of their low-average total costs but new businesses cannot afford it.…

    • 660 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    China's World Economy

    • 1005 Words
    • 5 Pages

    This means that China previously depended on exports to boost their industrialization and GDP, but now they will rely on consumption. China’s shift from manufacturing to services has led to a reduced need for commodity, thus leading to a fairly large problem for some of China 's export partners. A second reason for China 's economic problem is the Chinese stock market crash earlier this year. The crash has caused many investors to pull out of the Chinese market which has led to a decrease in trading commodities. A third reason for China’s economic slack off is the current condition of the real estate business.…

    • 1005 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    Due to the isolation of the retail banking business, investment banking and wholesale banking services have lost relatively cheap funding sources. It will reduce the profitability of commercial banks as a whole. The recommendations of the independent commission on banking reform not only impose higher requirements financial regulation but also have some negative…

    • 713 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    It is the result of practices like currency manipulation, less environmental regulations, reduced safety of employees, and lessened wages for the workers (Johnson). The system favors large companies over small, and cost an estimated 2.2 million and 4.7 million jobs for Americans (Johnson). None of these consequences are desirable and efforts can be made to help avoid them. Infrastructure and manufacturing in the country should be invested in more (Johnson). Programs that provide job training for those not college bound need to be expanded and designed similarly to the Danish and German programs, which are more functional than the current American programs (Johnson).…

    • 1809 Words
    • 8 Pages
    Improved Essays