{
  "title": "Foreign Exchange Intervention Through the Lens of the Quantitative Integrated Policy Framework: The Case of Albania",
  "publication": "Selected Issues Papers, April 16, 2025",
  "sourceUrl": "https://www.imf.org/en/publications/selected-issues-papers/issues/2025/04/15/foreign-exchange-intervention-through-the-lens-of-the-quantitative-integrated-policy-566272",
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  "summary": "In recent years, Albania has experienced a sustained appreciation of the domestic currency. This raises the questions of what factors are driving this appreciation and how to calibrate appropriate policy responses.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: David Bartolini, Jakree Koosakul, Rebecca Huang, Jesper L Linde, Roland Meeks\n- Publication date: April 16, 2025\n- Core question: What factors are driving the sustained appreciation of the lek and how to calibrate appropriate policy responses?\n- Approach: Estimates an IPF (Integrated Policy Framework) model to quantitatively illustrate policy tradeoffs for Albania."
    },
    {
      "heading": "Key findings",
      "content": "- The estimation results confirm the shallow nature of the local FX markets.\n- The appreciation of the lek is found to have been primarily driven by fundamental factors.\n- Because fundamentals are the main driver, conventional interest rate policy is identified as an appropriate policy tool.\n- Nevertheless, in certain circumstances where the fundamental lek appreciation is likely to be compounded by non-fundamental shocks (including shifts in foreign investor risk appetite), FXI (foreign exchange intervention) can serve as an effective complementary tool in alleviating output-inflation tradeoffs."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Prioritize conventional interest rate policy when lek appreciation is driven by fundamentals.\n- Deploy FXI as a complementary tool when non-fundamental shocks amplify fundamental appreciation, particularly to manage output-inflation tradeoffs.\n- Consider the shallow nature of local FX markets when designing FXI operations, given market liquidity constraints."
    },
    {
      "heading": "Model and analytical insights",
      "content": "- Uses the IMF’s Integrated Policy Framework (IPF) as the analytical lens.\n- The IPF model is estimated for Albania to provide quantitative illustrations of relevant policy tradeoffs between exchange rate dynamics, monetary policy, and FX intervention."
    },
    {
      "heading": "Subject tags and keywords (as provided)",
      "content": "- Subject: Currency markets, Exchange rates, Financial markets, Foreign exchange, Foreign exchange intervention, Integrated Policy Framework, Real exchange rates\n- Keywords: Albania, capital flows, case of Albania, Currency markets, exchange rate volatility, exchange rates, foreign exchange intervention, foreign exchange markets, integrated policy framework, IPF model, lek appreciation, market liquidity, monetary policy, output-inflation tradeoff, Real exchange rates, tourism\n\n---\n\n Content in this bundle\n\n- Sipea2025038\n  - Sipea2025038 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Sipea2025038 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/selected-issues-papers/issues/2025/04/15/foreign-exchange-intervention-through-the-lens-of-the-quantitative-integrated-policy-566272"
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    "Authors: David Bartolini, Jakree Koosakul, Rebecca Huang, Jesper L Linde, Roland Meeks",
    "Published: April 16, 2025",
    "Series: Selected Issues Papers",
    "DOI: https://doi.org/10.5089/9798229006682.018",
    "Authors: David Bartolini, Jakree Koosakul, Rebecca Huang, Jesper L Linde, Roland Meeks",
    "Publication date: April 16, 2025",
    "Core question: What factors are driving the sustained appreciation of the lek and how to calibrate appropriate policy responses?",
    "Approach: Estimates an IPF (Integrated Policy Framework) model to quantitatively illustrate policy tradeoffs for Albania.",
    "The estimation results confirm the shallow nature of the local FX markets.",
    "The appreciation of the lek is found to have been primarily driven by fundamental factors.",
    "Because fundamentals are the main driver, conventional interest rate policy is identified as an appropriate policy tool.",
    "Nevertheless, in certain circumstances where the fundamental lek appreciation is likely to be compounded by non-fundamental shocks (including shifts in foreign investor risk appetite), FXI (foreign exchange intervention) can serve as an effective complementary tool in alleviating output-inflation tradeoffs.",
    "Prioritize conventional interest rate policy when lek appreciation is driven by fundamentals.",
    "Deploy FXI as a complementary tool when non-fundamental shocks amplify fundamental appreciation, particularly to manage output-inflation tradeoffs.",
    "Consider the shallow nature of local FX markets when designing FXI operations, given market liquidity constraints.",
    "Uses the IMF’s Integrated Policy Framework (IPF) as the analytical lens.",
    "The IPF model is estimated for Albania to provide quantitative illustrations of relevant policy tradeoffs between exchange rate dynamics, monetary policy, and FX intervention.",
    "Subject: Currency markets, Exchange rates, Financial markets, Foreign exchange, Foreign exchange intervention, Integrated Policy Framework, Real exchange rates",
    "Keywords: Albania, capital flows, case of Albania, Currency markets, exchange rate volatility, exchange rates, foreign exchange intervention, foreign exchange markets, integrated policy framework, IPF model, lek appreciation, market liquidity, monetary policy, output-inflation tradeoff, Real exchange rates, tourism",
    "**Sipea2025038**"
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