Reflecting the weakness in aggregate demand, the output gap remains negative and the Albanian economy is still characterised by incomplete utilisation of production capacities. The lower economic growth and poor performance of the employment index have led to weaker pressures on increasing wages and production costs. Also, the sluggish aggregate demand keeps profit margins low. Weak pressures from production costs and downward inflation expectations were the main drivers lowering core and headline inflation rates. In parallel, imported inflation was contained due to low inflation rates internationally and the exchange rate stability. This situation is expected to continue in the quarters ahead. The macroeconomic analysis, updated with information for the first two months of the year, suggests low economic growth during this period. Private investments and consumption remained weak because of the low confidence of economic agents, slowdown of disposable income, tight lending terms, and presence of spare production capacities. Trade deficit expanded 3.6% in January, primarily as a result of declining exports, in contrast to a month earlier, when it expanded due to unusual import growth. “Minerals, fuels and electric energy” were the main drivers of contraction in exports of goods. On the other hand, exports of goods in the category of “Textiles and footwear” increased. In response to enhanced competitiveness and shifting of financial and human resources towards exporting sectors, export growth should be one of the main pillars of Albania’s economic development in the period ahead.

In addition, FDIC deposit insurance complements strong capital by reducing depositors’ incentives to run on banks. Following the financial crisis, the regulatory and supervisory framework has been extended to more directly reduce risks from swings in the supply of liquidity within the financial system. In particular, the Liquidity Coverage Ratio (LCR) reduces the likelihood of runs by forcing banks to hold highly liquid assets against expected future cash outflows.11,12 Example of money fund reform Runs can also occur on nonbanks. One particularly spectacular run during the financial crisis followed Lehman’s bankruptcy and the Reserve Fund’s “breaking the buck” as investors fled prime money market funds. This run was stopped dramatically by a government guarantee. Recent work by some New York Fed colleagues provides a real-world example of how, in normal times, new regulation can induce investors to distinguish between safe and money-like assets.13 They used the Securities and Exchange Commission’s (SEC) recent implementation of measures to reform the MMF industry as a quasi-natural experiment to characterize investors’ preferences for money-like assets.14 In 2014, the SEC approved a new set of rules aimed at mitigating the fragility of prime MMFs. As of October 2016, prime funds have been required under certain conditions to impose liquidity fees on redemptions or gates halting the redemption of shares.15 Additionally, prime funds offering shares to institutional investors may no longer price such shares with fixed NAVs; instead, they must price their shares at the market value of the underlying securities, much like standard mutual funds.