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The Determinants of Official and Free-Market Exchange Rates in Albania During Transition

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Author Info

  • Marta Muco
  • Harry Papapanagos

    ()

  • Peter Sanfey

    ()

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 free-market 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 flunctuations in the international exchange market.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/9806.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 9806.

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Date of creation: Mar 1998
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Publication status: Published in Journal of Comparative Economics, 1999, 27(3), pp.534-552
Handle: RePEc:ukc:ukcedp:9806

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/

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Keywords: Exchange Rates; Informal Market; Albania;

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References

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  1. Coleman, Mark, 1990. "Cointegration-based tests of daily foreign exchange market efficiency," Economics Letters, Elsevier, vol. 32(1), pages 53-59, January.
  2. Shiller, Robert J. & Perron, Pierre, 1985. "Testing the random walk hypothesis : Power versus frequency of observation," Economics Letters, Elsevier, vol. 18(4), pages 381-386.
  3. Copeland, Laurence S, 1991. "Cointegration Tests with Daily Exchange Rate Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(2), pages 185-98, May.
  4. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May.
  5. Goodhart, Charles A. E. & McMahon, Patrick C. & Ngama, Yerima L., 1993. "Testing for unit roots with very high frequency spot exchange rate data," Journal of Macroeconomics, Elsevier, vol. 15(3), pages 423-438.
  6. James G. MacKinnon, 2010. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  7. Bewley, Truman F, 1995. "A Depressed Labor Market as Explained by Participants," American Economic Review, American Economic Association, vol. 85(2), pages 250-54, May.
  8. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  9. Ahmet Mancellari & Harry Papapanagos & Peter Sanfey, 1996. "Job creation and temporary emigration: the Albanian experience," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(2), pages 471-490, October.
  10. Craig S. Hakkio & Mark Rush, 1990. "Cointegration: how short is the long run?," Research Working Paper 90-08, Federal Reserve Bank of Kansas City.
  11. Thomas D. Willett & Fahim Al-Marhubi, 1994. "Currency Policies for Inflation Control in the Formerly Centrally Planned Economies," The World Economy, Wiley Blackwell, vol. 17(6), pages 795-815, November.
  12. Sulo Haderi & Harry Papapanagos & Peter Sanfey & Mirela Talka, 1999. "Inflation and Stabilisation in Albania," Post-Communist Economies, Taylor & Francis Journals, vol. 11(1), pages 127-141.
  13. Booth, G. Geoffrey & Mustafa, Chowdhury, 1991. "Long-run dynamics of black and official exchange rates," Journal of International Money and Finance, Elsevier, vol. 10(3), pages 392-405, September.
  14. Rumen Dobrinsky, 1996. "Monetary policy, macroeconomic adjustment and currency speculation under floating exchange rates: the case of Bulgaria," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(1), pages 185-210, 05.
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Cited by:
  1. Fardmanesh, Mohsen & Tan, Li, 2003. "Wage and price control policies in transition economies," Journal of Development Economics, Elsevier, vol. 70(1), pages 173-200, February.
  2. Diamandis, Panayiotis F. & Drakos, Anastassios A., 2005. "Long-run dynamics of official and black-market exchange rates in Latin America," Global Finance Journal, Elsevier, vol. 15(3), pages 219-237, February.

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