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


  • Marta Muco
  • Harry Papapanagos


  • Peter Sanfey



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.

Suggested Citation

  • Marta Muco & Harry Papapanagos & Peter Sanfey, 1998. "The Determinants of Official and Free-Market Exchange Rates in Albania During Transition," Studies in Economics 9806, School of Economics, University of Kent.
  • Handle: RePEc:ukc:ukcedp:9806

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    References listed on IDEAS

    1. 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.
    2. Hakkio, Craig S. & Rush, Mark, 1991. "Cointegration: how short is the long run?," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 571-581, December.
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    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. 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, May.
    6. Bewley, Truman F, 1995. "A Depressed Labor Market as Explained by Participants," American Economic Review, American Economic Association, vol. 85(2), pages 250-254, May.
    7. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    8. 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 185-198, May.
    9. 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.
    10. 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.
    11. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
    12. 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.
    13. 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.
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    Cited by:

    1. 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.
    2. 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.
    3. 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.

    More about this item


    Exchange Rates; Informal Market; Albania;

    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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