UNIVARIATE METHOD OF MEASURING NATURAL RATE OF INTEREST: ALBANIA

Abstract

We use univariate methods to measure the natural rate of interest for Albania. Natural rate of interest is an important tool in monetary policy. It has been described as the rate that provides price stability and full employment. The natural rate of interest is widely used as an indicator for the monetary policy. A policy interest rate below the natural rate of interest is seen as expansionary, while a policy interest rate by a Central bank, is seen as contractionary for the monetary policy. We find that Albania’s natural rate of interest is below zero while the real interest rate is also below zero but close to the natural rate of interest. We conclude that Albania’s central Bank monetary policy is not as accommodative and expansionary as it’s indicated in the central bank’s public announcements.