IDEAS home Printed from https://ideas.repec.org/a/vrs/reoecp/v17y2017i2p141-158n3.html
   My bibliography  Save this article

The Effect of Depreciation of the Exchange Rate on the Trade Balance of Albania

Author

Listed:
  • Kurtović Safet

    () (Faculty of Management and Business Economics, University of Travnik, Aleja Konzula 5, 72270Travnik, Bosnia and Herzegovina.)

Abstract

Almost all countries face the problems of trade balance, although they are more inherent in developing countries and economies in transition. A majority of economists adheres to a common opinion real depreciation may lead to an improvement of the trade balance. That said, countries encountering trade balance issues use real exchange rate depreciation in order to improve the trade balance situation. Albania belongs to the group of transition countries that has been facing negative trade balance over last two decades. National currency devaluations of the lek (ALL) have been used by Albania to improve its trade balance. Therefore, this paper intends to investigate the effect of the real effective exchange rate depreciation of the ALL on the trade balance of Albania using quarterly data from 1994 to 2015. Bounds testing cointegration approach, vector error correction model (VECM) and impulse response were used for empirical analysis. The results of the study show that there exists a long-term cointegration between the real effective exchange rate depreciation and the trade balance. Specifically, real effective exchange rate depreciation positively affects the trade balance of Albania in both the long-run and short-run indicating the weak presence of the J-curve effect. Important recommendations were derived from the results.

Suggested Citation

  • Kurtović Safet, 2017. "The Effect of Depreciation of the Exchange Rate on the Trade Balance of Albania," Review of Economic Perspectives, De Gruyter Open, vol. 17(2), pages 141-158, June.
  • Handle: RePEc:vrs:reoecp:v:17:y:2017:i:2:p:141-158:n:3
    as

    Download full text from publisher

    File URL: https://www.degruyter.com/view/j/revecp.2017.17.issue-2/revecp-2017-0007/revecp-2017-0007.xml?format=INT
    Download Restriction: no

    More about this item

    Keywords

    Cointegration; Elasticity; J-curve; Long-term effect; Short-term effect;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vrs:reoecp:v:17:y:2017:i:2:p:141-158:n:3. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: http://www.degruyteropen.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.