Euroization Drivers and Effective Policy Response: An Application to the case of Albania

Guido della Valle, Vasilika Kota, Romain Veyrune, Ezequiel Cabezon and Shaoyu Guo

No 2018/021, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; interest rate; foreign currency intermediation; loans vis-à-vis; opportunity cost; euroization trend; financial asset; foreign currency loan; euroization; dollarization; financial stability; reserve requirement; exchange rate volatility; foreign currency loans vis-à-vis; banknotes in circulation; foreign currency reserve; loan euroization; Currencies; Bank deposits; Exchange rate risk; Exchange rates; Europe (search for similar items in EconPapers)
Pages: 30
Date: 2018-01-25
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=45587 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2018/021

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().