ABSTRACT
This chapter identifies the main obstacles against the effective use of monetary policies in socialist countries in general, and the most important specific causes for the failure of monetary policies as the key instrument of various stabilization attempts in Yugoslavia. It draws attention to certain new trends regarding commercial banks which started in 1986. In contrast to commercial banks, the increase of uncovered exchange rate losses with the National Bank of Yugoslavia was very large indeed. The tools of monetary policy belong to a set of indirect means of macroeconomic management. The most notable among such factors were the economic policy reactions to an exceptionally large inflow of foreign exchange funds, mainly from earnings of Yugoslav workers employed in Western European countries from 1966 on. Government subsidies granted to the nationalized sectors of the economy in countries with a high inflation rate often were the major cause of the budget deficit.
