Monetary policy and business

loans

Ada Alipaj

Fatmir Mandja

Advanced Monetary Theory and Policy

Final paper

Outline

• Introduction

• Methodology and limitations

• Business activity in Albania

• Crediting needs of businesses

• The model

• Empirical results

• Conclusions

• References

Introduction

Businesses provide a lot of services to the human beings and also are a source of income for government and country’s as well.

Active enterprises by prefectures and legal form end of 2014

Physical person Juridical person

Total 112,537 85,654 26,883

From 100% of employees of Albania, nearly 82.3% are employed by private sector.

Financing private sector has a great impact in Albanian economy and welfare.

Source: http://www.instat.gov.al/

Methodology and Limitations

Methodology

Our analyses is based on:

-quantitative data

-qualitative data

We have used SPSS as a tool towards conclusions

Limitations:

Lack of information about business activity in volume in Albania

Crediting needs of businesses

1. Investments:

-to buy inventory

-to invest in long-term projects

-to repay outstanding loans

-to open new production lines

-to purchase new assets, etc.

2. Liquidity:

-for operational costs

-financing payments to third parties

-to cover delays in payment

-to cover emergency needs,

-Contingency-payments, etc.

The model

• Pearson’s correlation:

• Covariance formula:

• Anova formula:

Yij=μ+τi+βj+γij+ϵijk,

for

ijk===1,2,…,a,1,2,…,b,1,2,…,r,

Hypothesis

HI : Monetary policy affects business loans interes

rates

HII: Monetary policy affects business loans volume

HIII: Loan interes rates have no impact in business

loans volume

HI:Monetary policy affects business loans

interes rates

Y=1+0.774*X

HII: Monetary policy affects business

loans volume

Regression results

HIII: Loan interes rates affect business

loans volume

Regression results

Monetary policy effect on construction and

agriculture activity

Loan interes rates effect on

construction and agriculture activity

Conclusions

• We found a negative relation between loan interes rates and business loansdisbursment. When the first one increases, the other decreases.

• The fact that monetary policy affects loan interest rates and not the business loans,is because that businesses are affected by other factors Since Business loans willusually be individually priced and have negotiable terms and conditions, this makesthat monetary policy not to have an effect on business loan volume

• The relation between monetary policy and loan interest rates is positive. This meansthat a change in monetary policy will lead in an other change in the same directionin loan interes rates. This is because BoA uses monetary policy also as mean ofregulating financial market

• We cant find a relation between monetary policy and business loans volume in theeconomy. This means that businesses are affected by other factors, such as theemergency liquidity needs.

• The analyses according to the activities, respectively for construction andagriculture,that the first one wasnt affected by the interest rate nor montery policyand the second had the tendency to be affected since is a very vunerable sector .

References

• https://www.bankofalbania.org/web/Statistika_230_1.php

• http://www.instat.gov.al/

• The Financial Model for Albania: A panel data approach 15 (54) 2013

Elona Dushku Vasilika Kota

• http://www.aab.al/al/

• http://www.ats.ucla.edu/stat/spss/output/reg_spss.htm