Research Papers

Research Papers

The Research Papers consist of research studies and analyses on subjects related to theoretical and practical aspects, relevant for current and future economic and financial developments.

Note: The views expressed in the Research Papers are solely of the author/s and do not necessarily reflect those of the Bank of Albania.

Research Papers

Financial developmment and economic growth: The Albanian case
Authors: Elona Dushku
This paper examines the causal relationship between financial development and economic growth for the Albanian economy using the Granger causality test for five different proxies for financial development. For the non-stationary and non-cointegrated series, the VAR model has been constructed and later, the above test has been applied. For non-stationary series but with a cointegrating relationship, the Granger-causality test has been applied after the construction of the vector error correction model (VECM). The empirical findings of the study show that there is a positive relation between all indicators measuring the financial development and economic growth in the long term. While in the short term, this relation is quite vague since different indicators provide different results. The data used in this paper belong to the period 1996-2007.

Monetary transmission mechanism in Albania
Authors: Gramoz Kolasi, Hilda Shijaku, Diana Shtylla
This paper revisits the monetary transmission mechanism in Albania, summarizing findings of previous studies and presenting new evidence based on a SVAR estimation. We investigate the effect of monetary transmission channels on aggregate output and headline and core inflation. We conclude that the exchange rate channel is not as strong as reported in previous works, and that the money and expectations channel play the most important role within the transmission mechanism. Our findings also suggest that the Bank of Albania should pay attention to the exchange rate fluctuations, as they seem to have an adverse impact on real output fluctuations.

Modelling the quarterly GDP - Role of economic and surveys indicators
Authors: Evelina Çeliku, Ermelinda Kristo, Merita Boka
The quarterly GDP forecasting models developed in this material aim to estimate the Albanian GDP trends in the short term. . Delays until the publication of the official quarterly GDP data make indispensable the preliminary estimation of this indicator. The modelling strategy of the quarterly GDP consists in building a set of different models for its estimation. They consist on ARIMA models with seasonal components and indicator models, similar to bridge models. This paper presents a first attempt to model the GDP using a multiequations system which accounts for the sectoral interactions. This model can not be used for forecasting purposes because of short time series. The estimates were made for total and for disaggregated sectoral GDP for the period: Q1:2003 – Q1:2009. The models exploit information from economic variables, financial variables and confidence surveys indicators, held by the Bank of Albania. The bridge models estimates show that the past developments of economic and financial variables explain the GDP changes while the survey variables lead them. The above mentioned behaviour of the explanatory variables supports the forecasting process of the quarterly GDP. Thus the policy makers in the Bank of Albania are provided with a timely estimation (nowcast) of the economic activity tendency for the reference quarter and for the coming two quarters. In general, estimations from the developed models are promising. It is suggested that the “best” forecast will be considered the average of the forecasts from all the proposed models. The off-sample forecast performance, “will decide” the model with the best qualities in order to predict the quarterly GDP.

Monetary policy: Institutional and operational framework toward a forward-looking regime
Authors: Gramoz Kolasi, Bledar Hoda, Sofika Note
Monetary policy at the BoA has evolved to approach itself in line with contemporary frameworks that meet most elements promoting efficiency and effectiveness. In this paper, we make an attempt to outline the introduction of new aspects as well as improvements to the current set up. In the past two years, The Bank of Albania has arranged two Forums, in December 2 005 and 2 006, in order to assess the conditions for a formal revision of its institutional and operational procedures of monetary policy. In addition, these Forums have contributed to escalate and institutionalize the BoA’s efforts to promote financial development and infrastructure as well as improve its operational and institutional framework for a more effective monetary policy. In this year’s meeting, we come up with an overall outline of the tasks completed, mostly proposed and elaborated in the last two forums, and a general assessment of the most required conditions towards a fully-fledged IT regime for Albania.

Macro-econometric model of Albania: A follow-up
Authors: Vasilika Kota, Elona Dushku
This paper follows up on the previous paper titled “A macro econometric model approach for Albania”. The objective is to present the progress of the macro-model during 2007. Actually, the model is enriched with the supply side and fiscal sector and includes the main channels of the transmission mechanism of the monetary policy. We have applied a new method of disaggregating annual to quarterly data and also some new definition of key variables, such as disposable income. The results indicate that the model is stable, it converges in the long run to its desirable path and it may be suitable for different policy scenarios. On the other hand, the forecast performance of the model was so far not analysed.

Measuring inflation expectations
Authors: Gent Hashoriva, Elona Bollano, Elvana Troqe
This paper attempts to apply some approaches in order to quantify the responses collected via the Consumer Confidence Survey conducted by the Bank of Albania. Moreover, it attempts to better understand the nature of consumer inflation expectations in Albania, which result to be adaptive. Accordingly, if the inflation rate increases, consumers expect an even greater increase of inflation in the subsequent period.

Is there a case for a further increase of minimal capital in Albania
Authors: Erjon Luçi
The proliferation of many new, high-risk banks, as a result of the liberal bank entry policy at the beginning of transition, increased the risk of systemic failures. Even in those CE and SEE countries that relied more on safer foreign competition there have been cases of foreign banks making large losses (e.g. in Hungary) or cases of fraud (e.g. in Poland) (Bonin, et al. 1998). With the privatisation of SOBs the government's implicit insurance of their deposits ceases too, and the possibility of deposit and bank runs became more real. Thus, the regulation and supervision of banks which could reduce the systemic risk in transition became of paramount importance. A systemic failure would discredit all previous banking reforms and it may be very difficult for the banking sector to restore savers and foreign investors confidence.
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