Albania: Selected Issues

IMF Staff Country Reports, January 24, 2025

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Albania: Selected Issues

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Bibliographic details

• Published: January 24, 2025
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9798400299902.002

Overview

• Examines the case for foreign exchange intervention (FXI) in the context of Albania by estimating an integrated policy framework (IPF) model to quantitatively illustrate relevant policy trade-offs.
• A version of the quantitative IPF (QIPF) model is estimated for Albania to examine the merits of FXI in response to shocks amid shallow FX markets.

Model and shocks considered

• Quantitative tool: quantitative IPF (QIPF) model estimated for Albania.
• Two specific shock types analyzed:
  • (1) a fundamental shock in the form of a tourism boom.
  • (2) a nonfundamental shock in the form of exogenous portfolio inflows caused by a risk-on episode.

Main findings

• Exchange rate volatility driven by nonfundamental factors may present policymakers with a trade-off between stabilization objectives.
• Adverse impacts from risk shocks can be addressed using FXI.
• A better tool to address temporary inefficient capital flow shocks is a sterilized FX intervention, provided that:
  • markets are sufficiently shallow, and
  • an appropriate buffer of reserves is available.
• In cases of nonfundamental shocks, the scenario analysis suggests that interventions could be beneficial by lowering output and inflation volatility.

Policy recommendations and considerations

• Consider letting the exchange rate adjust more flexibly.
• Rely on interest rate policy as the primary tool for price stability.
• Use sterilized FX intervention selectively for temporary inefficient capital flow shocks when conditions (market shallowness and reserve buffer) are met.

Risks, trade-offs, and caveats

• Authorities should internalize potential adverse consequences of FXI, including impacts on:
  • risks to the central bank balance sheet,
  • interest rate transmission, and
  • financial market development.

Source: International Monetary Fund. European Dept. "Albania: Selected Issues", IMF Staff Country Reports 2025, 021 (2025).

Content in this bundle

• Albania: Selected Issues; IMF Country Report No. 25/21; December 17, 2024
  • Albania: Selected Issues; IMF Country Report No. 25/21; December 17, 2024 (Markdown version)
  • Albania: Selected Issues; IMF Country Report No. 25/21; December 17, 2024 (PDF)