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
Motives and Effectiveness of Forex interventions in Albania
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.