Research Papers

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.

This discussion paper focuses on the long-run mean-reverting properties of debt to GdP ratio and the role of the government in shaping the fiscal policy across the different regions for the period 2000-2011. the material, evaluates the solvency condition by mean of panel unit root and also estimate the fiscal responses of fiscal policy in 27 european union and euro area and other future and potential member countries in a panel Var.

The main goal of this paper is to develop a better understanding of international capital flows based on the episode of sudden stop concept. first, we compute a sudden stop indicator (or our binary variable) in order to analyze movements in foreign capital flows. second, the probability of these episodes is estimated as a function of some economic fundamentals by running a probit estimation with quarterly data over the period 2004–2012.

As a small open economy, Albania is thought to be prone to foreign inflationist influences. The increasing degrees of trade openness and exchanges would support such claim with imported inflation producing an impact on overall inflation. This paper attempts to quantify imported inflation for a selected sample of consumer goods representing 60% of the CPI basket.

This paper examines the optimal level of foreign reserve holdings for Albanian based on optimal model approach proposed by Gonçalves (2007). The model is grounded on a set of economic fundamentals and crisis inspired indicators, such as debt level, capital account and sudden stops patterns, risks to large deposit withdrawals during crises, which has achieved less attention previously. Our results show that actual level of international reserve in Albania is closed to optimal level especially during the last two years, but below the optimal level if the government chooses to fully guarantee the foreign currency deposit withdrawal. Consequently, in the medium term, Bank of Albania should try to increase its foreign reserves in line with the optimal approach.

The latest financial crisis emphasized the importance of the housing market in the economy. The comprehensive assessment of house price determinants has gained more importance among academic studies. This study aims to assess the role of some financial factors in the performance of house prices for Albania through the VECM cointegration analysis. The empirical findings show that house prices are influenced positively by bank lending, and negatively by the Treasury bills yield, in the long term. The inclusion of the exchange rate in the empirical analysis in determining the house prices is a novelty of this study.

After the global financial crisis, in Central Eastern and Southeastern European countries, credit has slowed down quickly, in some cases even contracting considerably, leading to a decline on financial intermediation and a weak economic performance. This paper aims to evaluate empirically the factors that have influenced the lending activity of banks in these countries before and after the global crisis. The estimated results obtained by applying a panel regression method with fixed effects, show that the main factors behind credit developments are the economic slowdown, the deterioration of the loan quality, and the drop in foreign financing from abroad, with the latter being to some context offset by the increased domestic funding. This analysis adds value to the existent research for this region and helps policy makers in understanding the similarities and differences between peer countries, so as to properly address the main vulnerabilities.