Research Papers

In this paper, we attempt to estimate a series of the natural rate of unemployment (NAIRU) for Albania in the period 1998-2012 applying a State-Space model featuring Kalman Filter. The approach is based on an Augmented Phillips Curve with NAIRU specified as an unobserved variable. The constraint is activated upon the path of the NAIRU.

This paper analyses empirically the internal and external factors related to banking stability, especially if primary sovereignty risk affects banking stability. For this reason, we have followed a new method for calculating a risk index for the Albanian banking system, which is based on the balance sheet data reported by banks and reflects the banking situation in individual terms. The model is estimated based on a two-step General Method of Moments (GMM) approach with panel data for the period 2008 Q03 – 2015 Q03.

The study project aims to re-estimate potential output, the natural rate of unemployment and the respective gaps based on existing and new approaches available in the case of Albania. Results have confirmed that potential growth has shrank and the natural rate of unemployment has increased since 2009. Re-estimations have validated past medium-term projections and monetary policy decision-making. At the same time, they assist in the orientation for structural reforms towards sustainable and inclusive economic growth.

Based on the experience of the Bank of Albania, the paper proposes a framework to estimate the interest rate lower bound in small, open, and euroized economies. The paper introduces a stylized monitoring tool to assess the unintended consequences of low policy rates. The paper is the first attempt to estimate the impact of low interest rate on the public’s demand for banknote by denomination.

This paper aims at offering a statistical evaluation methodology on the forecasting performance of the GAP model, a semi-structural economic model used to support monetary policy decisions at the Bank of Albania since 2011. In this paper we evaluate the forecasts produced purely by the model, and not those used by the Monetary Policy Department, which also include the expert judgment and are not made public. The analytical approach used in the discussion material combines a statistical diagnostic look-up consisting in statistical measurements as RMSE and BIAS important to understand the forecasting performance of the model as an instrument in one, two and three years ahead time horizons.

The aim of this discussion material will be to examine the effects of fiscal developments on economic activity and on the market condition over time. The study employs a threshold vector autoregressive approach for 10 Developing and Emerging Market economies in the Central Eastern and South Eastern European Countries. The financial stress index is constructed by considering a wide range of market patterns, including banking related stress, money market related stress, exchange markets stress and real estate markets related stress, upon which the threshold upon market condition is build. The threshold VAR model allows to analyse this interrelationship during episodes of economic downturn and stress in financial market. Finally, the empirical work considers a structural identification approach.

The post crisis period in Albanian economy has been distinguished by low inflation and slow economic growth. In response to negative inflation and output gaps, Bank of Albania has persistently reduced its policy rate to support economic activity and bring inflation to its objective. Hence, the growth in credit and aggregate demand is lagging. The transmission mechanism seems to have lost some of its efficiency. This paper investigates the hypothesis that the relationship among interest rate, money and inflation has changed in the post crisis period (the case of Albania).

The monetary transmission mechanism has been an integrated part of empirical and analytical study at the Bank of Albania, trying to identify the impact of the traditional interest rate and exchange rate channels on output and inflation. However, after the global financial and economic crises, little is known about the macroeconomic pass-through effects of monetary policy changes. This paper examines the transmission mechanism of the monetary policy in Albania during 2002 M01 - 2014 M12. The main question addresses the macroeconomic pass-through effects of a monetary policy shock. The analysis is based on a structural vector autoregressive model for the Albanian economy that includes means sign restrictions approach to identify the monetary policy shock effects with regards to a conventional interest rate and possible different balance sheet policy changes.

This paper proposes a methodology to develop empirically based and theoretically consistent deeuroization policies. It is derived from the experience of Albania. The paper is the first attempt to provide an empirical measure of the optimal level of euroization. The results indicate that euroization is trending above the estimated measure in Albania, calling for deeuroization policies. In the long term, deeuroization requires maintaining the commitment to low and stable inflation in a context of greater exchange rate flexibility to encourage saving in local currency. In the short term, policies that mitigate the financial stability risk due to euroization contribute to deeuroization inasmuch as they make banking intermediation in euro less financially attractive to the public.