The determinants of official and free-market exchange rates in Albania during transition

This paper uses high-frequency data to examine the relation between official and free-market exchange rates in Albania. We present econometric evidence that the official and free markets are efficient, in the sense that one cannot use exchange rate movements denominated in one currency to predict movements in another currency and that movements in the free-market rate cause movements in the official rate. Using survey results from the free-market, we also show that country-specific Factors are perceived to be more important determinants of exchange rate movements in Albania than fluctuations in the international exchange market.