Research Papers

Fiscal policy is an important determinant of economic developments and often government decisions on spending and taxes are assigned a crucial role in speeding up or slowing down economic growth. The recent global financial and economic turmoil highlighted the importance of fiscal stimuli in enabling economic recovery, in coordination with monetary policy. This paper investigates the macroeconomic effects of discretionary fiscal policy in Albania, with the aim of identifying the most effective type of policy in bolstering economic growth, while exerting low to moderate pressures on inflation.

In this paper the authors develop a small Structural model for the Albanian economy and estimate it using Bayesian estimation techniques. The model captures the essential of small, open, flexible exchange rate economy linkages between the policy instrument (repo rate) and the main macroeconomic variables of output, inflation, exchange rate and unemployment.

Albania opted for a flexible exchange rate from the beginning of transition not simply because of its limited international reserves but also to avoid costly adjustments of possible exchange rate misalignments that usually characterize pegged regimes. While it is tempting to intuitively judge this choice as successful, a more formal assessment of whether the exchange rate in Albania does in fact reflect fundamentals is warranted not least to highlight the importance of fiscal and monetary discipline to ensure the stability of internal and external equilibrium in absence of a very explicit anchor. This paper is a first attempt to assess the relationship between the Lek/Euro exchange rate and some key fundamentals as well as the role of other policies and factors that might disturb its equilibrium.

The Monetary Conditions Index (MCI) was first introduced by the Central Bank of Canada [Freedman (1995)] and then many banks and international institutes used this index as a mechanism to interpret the orientation of monetary policy and the effect it has on the economy. MCI is calculated as the linear combination of the variables which represent the main channels of the transmission of monetary policy in an open economy: the real interest rate and thereal effective exchange rate where the coefficients represent their relative effects on aggregate demand. The aim of this index is to give information about monetary conditions.

The objective of this paper is to estimate inflation persistence in Albania for the period 1993 to 2008. We apply the univariate approach with constant and time varying mean of inflation for headline and core inflation, and also test whether there are structural changes of persistence. The empirical results suggest that persistence of headline inflation was somehow higher during the inflationary periods while it started to decline after 1997, when inflationary expectations seem to have been stabilized.

The banking industry is the most important segment of the Albanian financial system and, for that reason, it requires more attention when it comes to financial analysis. This paper handles theoretically and analytically some indicators of risk and performance, and for the first time, the methodology of measuring a risk index for the Albanian banking system is presented.

The study aims at estimating the efficiency and the competitive profile of the Albanian economy, based on the labour productivity indicator (LP ) and unit labour costs (UL C). These indicators are calculated in accordance with best statistical practices outlined in the respective OE CD manuals (2001 and 2008).