The Adequacy Level of Foreign Reserve holdings: a new approach

Author: Elona Dushku, Gerti Shijaku
Printed on: 08.06.2017
Production date: 08.06.2017
Material category : Not Periodic Publications / Working Papers
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.