Foreign exchange pressure in two South-East european economies.

Abstract

In this thesis, the determinants of foreign exchange market pressure in two South East European Economies (Albania and Romania), is explored. An Exchange Market Pressure Index is constructed for each of these countries and its relation to five critical economic indicators (domestic credit, budget deficit, real exchange rate, reserves adequacy ratio and current account) is assessed using Autoregressive Distributed Lag (ARDL) bounds testing methodology. Results indicate a long run cointegration relationship between the variables in both countries. Granger causality analysis indicates that the EMP is mostly influenced by the real exchange rate (in Albania), budget deficit (in Romania) and the reserves adequacy ratio (in both countries).