The Impact of Exchange Rate on Economy (Case of Albania)

Abstract

The purpose of the study is to inspect the impact of exchange rate fluctuations on Albanian macroeconomic performance. Macroeconomic indicators are taken in considerate starting from 10th month of 1998 until 11th month of 2016. The data includes monthly observations of US$/ALBLEK, inflation, unemployment, interest rate, export and import. Vector Autoregressive model (VAR) is conducted and empirical analysis indicates that the US$/ALBLEK exchange rate has no significant impact on selected macroeconomic variables for the first, the second and the third month. This mean that, ER does not give any significant effect in three months on CPI, exports, imports, interest rates and unemployment. But, in fourth month is noticed that US$/ALBLEK exchange rate has a negative significant impact on selected macroeconomic variables such as export, import, and inflation which is calculated by using consumer price index. In this period is observed as well, that exchange rate has no significant impact on interest rate and unemployment rate. The main reason is that Albanian economy is moving in slow motion.