![]() ![]() The results suggest that monetary shocks account for around 28 percent of the real exchange rate fluctuations in Albania. The shocks are identified by using a cointegrating structural vector autoregression method with long-run restrictions. The first two variables aim at identifying the supply shocks the third is identified as a real demand shock whereas monetary indicators are intended to capture money demand and money supply effects. We estimate a small macroeconomic model following Weber (1997) with five variables, namely employment, output, real exchange rate, money and prices. The distinction between these shocks helps us to have a better understanding on the role of exchange rate in the economy, whether it is a shocks absorber that stabilizes the deviations from equilibrium, or it’s a source of instability. ![]() This study aims to assess the sensitivity of exchange rate to real and monetary shocks in Albania after the transition.
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