Inflation and Money Demand in Albania

IMF Working Papers, July 1, 1998

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Inflation and Money Demand in Albania

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Bibliographic details

• Authors: Sanja Kalra
• Published: July 1, 1998
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451948585.001

Summary and Key Findings

• The paper uses a simple analytical framework to estimate relationships between prices, money the exchange rate, and interest rates in Albania during 1993–97.
• The estimated parsimonious error correction model extends the findings of a growing literature on inflation and money demand in transition economies.
• The results suggest that, after the one-time effects of the 1997 crisis are taken into account, the long-run determinants of inflation and money demand remained unchanged.
• Strong financial policies since mid—1997 appear to have helped to restore conditions for low inflation and stable money demand.

Methodology

• Analytical approach: simple analytical framework.
• Econometric specification: parsimonious error correction model.
• Variables examined: prices, money, the exchange rate, and interest rates.
• Period of analysis: 1993–97.

Policy Implications and Interpretation

• The persistence of long-run determinants implies that structural relationships governing inflation and money demand were not fundamentally altered by the 1997 crisis once its one-time effects are accounted for.
• Strong financial policies implemented since mid—1997 are associated with the restoration of conditions conducive to low inflation and stable money demand.

Subjects and Keywords

• Subject: Demand for money, Depreciation, Exchange rates, Foreign exchange, Inflation, Money, National accounts, Prices, Real exchange rates
• Keywords: Albania, Chow statistics, Demand for money, Depreciation, exchange rate, exchange rate expectation, Exchange rates, inflation, interest rate, money demand, money demand demand shock, money demand development, money demand processes, price level, price level equation, Real exchange rates, shocks in Albania, U.S. dollar, vector autoregression, vector portmanteau statistic, WP

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• Inflation and Money Demand in Albania - WP/98/101
  • Inflation and Money Demand in Albania - WP/98/101 (Markdown version)
  • Inflation and Money Demand in Albania - WP/98/101 (PDF)