Research Papers

After the global financial crisis, credit in Central Eastern and South-eastern European countries has slowed down quickly, in some cases even contracting, leading to a decline in 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 economic growth, credit quality, the level of the financial intermediation together with foreign and domestic financing sources are important determinants of credit growth. The credit crunch after the crises is dictated mostly by the risk averse behaviour and the drop in banks’ foreign finance, with the latter being to some context offset by the increased domestic funding.

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.

This study investigates the efficiency of credit allocation in Albania, with a particular focus on the use of kernel density estimation as an alternative estimation methodology for pooled and panel data sets. We focus on the allocation of banks credit portfolio (credit to business) to investigate whether sectorial distribution of credit after 2008 reflects the trends of sector developments (in terms of expansion), performance of credit portfolio and banks own characteristics. Empiric analysis is based on the adoption of kernel density estimation, for the panel datasets. Conclusions are based on the estimation and interpretation of multidimensional joint densities.

This paper continues the development of the multi-dimensional density as alternative method of empiric investigation in the study of economics as a social phenomenon, defined and considered as a random event. The paper further develops the research of Tanku and Ceca (2013) by providing the tools and the metric of estimation method. The paper is based on the definition of the economy as a multi-dimensional random process and the estimation of the multi-dimensional joint probability function. The empirical relevance of the methodology is demonstrated by the reexamination of the relationship between money and inflation in the case of developed economy.

A housing bubble that developed throughout most of the 2000s in the developed world is currently seen as one of the most important causes that led to the global financial crisis of 2008. As a direct result, ever since the crisis, the housing market has become an increasingly important topic for economic researchers in addition to policy-makers regularly tracking its developments. Economic theory suggests that the value of assets, while volatile in the short-run, are driven by their fundamentals in the long-run, with actual prices eventually returning to levels predicted by these fundamentals. This paper attempts to build an index of “fundamental” house prices for the Albanian economy.

In February-March 2012, a survey on the use of payment instruments was conducted for 400 businesses and their responses are analysed. The aim of this survey was to evaluate the usage of payment instruments by Albanian enterprises. It took place in Tirana - Durres area, which has the highest concentration of businesses and banking transactions. This study is based on a public survey. The selection of enterprises is based on the “Structural survey of enterprises, 2011, INSTAT”. The study reflects the assessments made by the selected businesses on the posed questions.

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.

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.