Research Papers

In countries with floating exchange rates, central banks generally intervene to contain market volatility or put a stop to exchange rate overshooting, but not to influence the exchange rate trend. They also intervene to maintain international reserves against vulnerabilities in the external sector, or for mercantilist motivations. Using Probit and nonlinear testing models, this study tries to evaluate the Bank of Albania’s reaction function to intervene during the 2000-14 period. Regarding the response to exchange rate deviations, the analysis has been extended to distinguish divergences from longer versus shorter time trends. The final aim of the study is to assess whether the central bank interventions have been effective in stabilizing the exchange rate by returning it towards an underlying direction and reducing undesired market volatility.

This material aims to identify whether or not consumers’ socio – demographics characteristics such as: education, family size, age, gender, employment status and income, play a role on payment choice behavior for the Albanian consumers. Using a binary choice model (Probit model) this study utilizes micro data drawn from the public survey carried out by Bank of Albania (March – April 2012) on the usage of payment instruments by Albanian consumers. Among other things, Probit model results suggest that socio-demographic characteristics such as education, income level and employment status do influence consumers’ habits in using specific payment instruments at different POS situations.

The importance of inflation expectations for monetary policy requires an analysis of their nature: rational or adaptive? This is essential, especially in the inflation targeting regime, recently implemented by the Bank of Albania (BoA). In this paper, we explore inflation expectations obtained through surveys from BoA, over the period 2003 Q2 – 2015 Q1. Qualitative inflation expectations were quantified using different probabilistic approaches and balances, in addition to quantitative ones. Statistical analysis suggests that inflation expectations provide useful information about the direction of future inflationary pressures. Rationality tests confirm the mixed nature of inflation expectations, while at the beginning of 2009 they were assessed as fully-adaptive. Although expectations continue to be dominated by the adaptive component, several of them gained some rational properties over the years.

The MEAM macromodel has been mainly used to analyze various risk scenarios in the Albanian economy, as well as to generate projections about important macroeconomic indicators like inflation, GDP components, labor market, etc. The current MEAM estimation is based on vintage quarterly data during the 1996-2006 period. Because many of the important indicators have been revised in recent years, this article intends to investigate whether such revisions and the extension of the estimated period with post-global crisis data observations have affected the stability of the model.

In a continuous challenge for increasing economic growth pace, Southeastern Europe economies need to explore all contributing channels to this process. While previous researches do not find a significant relation between financial development and economic growth in SEE countries, up-to-date analyses are missing in this aspect. This paper aims to investigate the finance-growth links in a representative group of ten SEE economies through empirically analyzing the latest data available with panel data techniques, and trying to understand if implementation of financial regulatory frameworks and economic reforms during the last decade has contributed to making financial sector development significant for growth.

Including for the first time macroeconomic variables in the empirical analysis with panel data for commercial banks, this paper aims to shed light on the determinants of net interest margin in the Albanian banking sector. Considered as a good indicator of banking intermediation efficiency level, interest margin size helps to perceive asymmetries in the banking market and the costs transmitted to the clients. The issue is important in the context of monetary policy, since the higher are the asymmetries in the market, the more difficult the transmission of its signals. Using an OLS-based PCSE procedure to estimate the econometric model, this study suggests that bank specific factors such as overhead costs, capital adequacy ratio, current liquidity ratio and non-performing loans ratio are the most important determinants of interest margins in Albania.

The growth of lending in foreign currency in many Central, Eastern and South Eastern European (CESEE) countries has driven to the expansion of analyses and researches in this regard. In Albania, similar to the other regional countries, the study of main determinants of foreign currency-lending is rather important. FCL accounts for 65% of lending to private sector. This paper examines the determinants of FCL to the private sector by means of the bound test approach to Autoregressive Distributed Lag approach, based on demand and supply indicators. The results provide evidence that foreign currency lending is mainly driven by the availability of bank foreign funding deposits and minimum variance portfolio share. Foreign currency lending is more preferred under higher interest rate differentials, inflation volatility and lower exchange rate volatility. The study identifies a long-run cointegrated and stable relationship.

The main focus of this paper is to appraise the money demand function and the velocity of broad money, M3, in the medium and long-term, given its role as a second pivotal pillar for the monetary policy of the Bank of Albania, in accordance with its primary objective, that of price stability. The results show that the demand for money is stable, even in the aftermath of global financial crisis, as well as its performance contains important information for the inflation trend.