Euroization Drivers and Effective Policy Response: An Application to the case of Albania / Guido della Valle, Vasilika Kota, Romain Veyrune, Ezequiel Cabezon, Shaoyu Guo.

Format:

Book

Government document

Author/Creator:

della Valle, Guido.

Contributor:

Cabezon, Ezequiel.

Guo, Shaoyu.

Kota, Vasilika.

Veyrune, Romain.

International Monetary Fund, issuing body.

Series:

IMF Working Papers; Working Paper ; No. 2018/021

IMF Working Papers

Language:

English

Subjects (All):

Euro--Albania.

Euro.

Monetary policy--Albania.

Monetary policy.

Monetary policy--Europe.

Financial security--Europe.

Financial security.

Albania--Economic policy.

Albania.

Europe--Economic conditions.

Europe.

Physical Description:

1 online resource (31 pages)

Edition:

1st ed.

Place of Publication:

Washington, D.C. : International Monetary Fund, 2018.

Summary:

This paper proposes a methodology to develop empirically based and theoretically consistent deeuroization policies. It is derived from the experience of Albania. The paper is the first attempt to provide an empirical measure of the optimal level of euroization. The results indicate that euroization is trending above the estimated measure in Albania, calling for deeuroization policies. In the long term, deeuroization requires maintaining the commitment to low and stable inflation in a context of greater exchange rate flexibility to encourage saving in local currency. In the short term, policies that mitigate the financial stability risk due to euroization contribute to deeuroization inasmuch as they make banking intermediation in euro less financially attractive to the public.

Contents:

Cover

Contents

Abstract

I. Introduction

II. The Concept of Euroization

A. Review of the Economic Literature on Euroization

B. Measuring Euroization in Albania

III. Euroization Drivers in Albania

A. An Empirical Measure of the Optimal Euroization Level

B. Macroeconomic Euroization Drivers

C. Mispricing of Foreign Exchange Risk

IV. An Effective Policy Response

A. Macroeconomic Policies

B. Prudential Measures

V. Conclusion

REFERENCES

Figures

1. Causes of Euroization

2. Evolution of Foreign Currency Deposits as a Share of Total Deposits

3. Share of Foreign Currency Lending by Bank Ownership and New Credit Flow

4. Actual and Benchmark Euroization Levels

5. Two-way Risk in the Foreign Exchange Market

6. Deposit Euroization and Interest Rate Differential-Time Series

7. Deposit Euroization and Interest Rate Differential-Correlation

8. Deposit Euroization and Minimum Variance Portfolio

9. Risk Premia on Foreign Currency Loans and Exchange Rate Developments

10. Lek Minus Euro Intermediation Spread

11. Structure of Banks' Sources of Foreign Currency Funding by Ownership

12. Causes of Euroization and Policy Responses

Tables

1. Results of the Panel Regressions

2. Interest Rate Spread as a Determinant of Financial Euroization

3. Minimum Variance Portfolio and its Components in European Countries

Boxes

1. Estimates of the Seignoriage Losses Due to Euroization.

Notes:

Includes bibliographical references.

Description based on publisher supplied metadata and other sources.

Description based on print record.

ISBN:

9781484339381

148433938X

9781484339411

148433941X

OCLC:

1039704443