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

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  • Muco, Marta
  • Papapanagos, Harry
  • Sanfey, Peter

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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  • Muco, Marta & Papapanagos, Harry & Sanfey, Peter, 1999. "The Determinants of Official and Free-Market Exchange Rates in Albania during Transition," Journal of Comparative Economics, Elsevier, vol. 27(3), pages 534-552, September.
    • Handle: RePEc:eee:jcecon:v:27:y:1999:i:3:p:534-552
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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. Erjon Luci & Marta Muco & Peter Sanfey, 2001. "Stabilization, monetary policy and financial institutions in Albania," wiiw Balkan Observatory Working Papers 16, The Vienna Institute for International Economic Studies, wiiw.
    3. Erjon Luci & Marta Muco & Elvira Sojli, 2006. "Euroisation in Albania: From Spontaneous to Consensual," wiiw Balkan Observatory Working Papers 71, The Vienna Institute for International Economic Studies, wiiw.
    4. Genti Hashorva & Erjon Luci & Marta Muco & Peter Sanfey, 2004. "Private Sector and Labour Market Developments in Albania: Formal versus Informal," wiiw Balkan Observatory Working Papers 39, The Vienna Institute for International Economic Studies, wiiw.
    5. Lisa Arrehag & Orjan Sjoberg & Mirja Sjoblom, 2005. "Cross-border Migration and Remittances in a post-communist society: Return flows of money and goods in the Korce district, Albania," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 3(1), pages 9-40.
    6. 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.
    7. Albert Makochekanwa, 2007. "Zimbabwe’s Black Market for Foreign Exchange," Working Papers 200713, University of Pretoria, Department of Economics.
    8. Onour, Ibrahim, 2020. "Modeling the impact of economic sanctions on a small open economy: A dynamic approach," MPRA Paper 116005, University Library of Munich, Germany.

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    More about this item

    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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