Research Papers

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.

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.

The aim of this paper is to estimate potential output and output gap for Albania, over the period 1996-2006. Potential output is estimated using the methods of linear regression, Hodrick Prescott filter and the production function approach. The results of the three methods are compared using the time domain analyses for measuring economy’s cycle and their severity. These tests indicate that the production function approach estimates fewer economic cycles with the lowest variance. Given that it also provides a supply side of the economy, this approach appears to be more relevant in estimating potential output gap in Albania.

During the last 15 years Albania’s current account has wandered in deficits, which in most of the cases have reached well beyond the 5% of GDP, a broadly accepted measure of sustainability. This research investigates the sustainability properties of the Albanian current account deficit, based on the LRBC method developed by Trehan and Walsh (1991), and extended by Taylor (2002). We make use of quarterly current account observations for the 1994–2006 period and unit root testing to investigate the mean reverting properties of current account. We pay special attention to the role of remittances and aim to asses whether they play a significant role in the sustainability of current account. Our results show that despite latest widening deficit, current account seems to be sustainable in the long run. However this sustainability might be vulnerable and deserves the attention of Albanian authorities.

This paper contributes to the empirical findings on the bank lending channel of monetary policy in Albania by using the individual data from the main twelve commercial banks. In particular, it is aimed to analyze whether the private loans developments can be explained by changes in the monetary policy indicator, as measured by the rate of one-week repurchase agreements. The empirical findings suggest that bank loans have responded only modestly to monetary policy decisions during the 2004q1:2006q4 period. Coefficients of the monetary policy indicator are statistically significant and have the expected negative sign, thus supporting the theoretical relationship between interest rates and the volume of loans. Nevertheless, the empirical evidence to support the existence of a bank lending channel in Albania is mixed. While the smaller banks are found to be less sensitive to the monetary policy stance compared to the larger banks - and which is contrary to theoretical and intuitive expectations - the results show that yet the more liquid banks are better shielded to monetary policy changes - which is in line with the bank lending channel theory.

The purpose of this paper is to verify the presence of Balassa – Samuelson effect and estimate it for Albanian economy. Investigation of Balassa-Samuelson (BS) constitutes an important aspect for the monetary policy pursued by central banks, because it lays emphasis on the relation between relative productivity of tradable to nontradable sectors of a small and open economy and relative prices of both sectors. Theoretically, the presence of a positive relation would support the fact that inflation is influenced by relative productivity growth. Making use of econometric models, this paper estimates the domestic and foreign BS effect on inflation. In order to carry out the estimations, data on value added and employees’ number in the economy sectors are made use of.

This paper analyses the relationship between exchange rate and inflation in Albania. The first aim is to investigate the impact of exchange rate changes on domestic consumer prices and secondly throw some light on the importance of currency movements on the conduct of monetary policy. The findings could be useful to policymakers at the central bank before adopting a full-fledged inflation targeting regime.

The practice of core inflation measures provides various approaches. Is there any perfect and universal method to measure it? Until now, no such thing has been concluded.

This paper uses an error correction model to measure the elasticity of merchandise import (export) flows to (from) Albania with respect to domestic (foreign) real demand, developments in relative prices abroad and at home, and local currency market fluctuations. The model specification is intended to find out whether trade flows respond differently to the explanatory variables in the long and short run.

This paper assesses the extent and the speed of exchange rate pass-through to consumers prices in Albania, using vector autoregressions models, VAR . Evidence shows that exchange rate pass-through for the period 1996-2006 is complete within a year. Meanwhile, a sub-sample analysis shows the incompleteness and the decline of pass-through to consumer prices after the year 2000.