The Appreciation of the National Currency in Albania: Does Informality Matter?
The Appreciation of the National Currency in Albania: Does Informality Matter?

Author(s): Emiljan Karma
Subject(s): Social Sciences
Published by: Udruženje ekonomista i menadžera Balkana
Keywords: Exchange rate; EURO / LEK; ARDL Approach
Summary/Abstract: This study aims to identify the factors that contributed to the appreciation of the Albanian LEK against the EURO, given the increasing euroization of the Albanian economy. The study uses ARDL analysis and quarterly data from 2008Q1–2023Q3 to examine the primary influences on currency exchange rate variations, as per economic theory. The study’s findings indicate that conventional economic variables have little impact on exchange rate variations. However, the study found that remittances and GDP do have a significant impact on the EUR/LEK exchange rate. This study also leaves room to highlight the role of informality in explaining this phenomenon. Therefore, policymakers may need to intervene in this situation, through formal channel transactions (using financial institutions), which must be carried out in the LEK currency, and secondly, through a monetary intervention aimed at creating a more balanced EURO/LEK exchange rate.

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