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The determinants of official and free-market exchange rates in Albania during transition

Author

Listed:
  • Marta Muço

    (University of Tirana and Bank of Albania)

  • Harry Papapanagos

    (University of Kent)

  • Peter Sanfey

    (European Bank for Reconstruction and Development and University of Kent)

Abstract

This paper uses high-frequency data to examine the relation between official and free-market exchange rates in Albania. We use daily data to test econometrically, first, whether the official and free-markets are efficient, in the sense that one cannot use exchange rate movements denominated in one currency to predict movements in another currency; and second, whether movements in the free-market rate “cause” movements in the official rate. Our results provide support for the first proposition and partial support for the second. We also report the results of a unique survey of freemarket dealers in Tirana, designed to determine the main factors that influence exchange rate movements. The evidence is that country-specific factors, in particular the large flows of illegal smuggling and emigrants’ remittances, are more important than fluctuations in the international exchange market.

Suggested Citation

  • Marta Muço & Harry Papapanagos & Peter Sanfey, 1998. "The determinants of official and free-market exchange rates in Albania during transition," Working Papers 34, European Bank for Reconstruction and Development, Office of the Chief Economist.
    • Handle: RePEc:ebd:wpaper:34
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    More about this item

    Keywords

    Exchange Rates; Informal Market; Albania;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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