ardian fullani : the importance of economic research speech by mr ardian fullani, governor of the bank of albania, at the workshop “ economic research in south - eastern europe ”, tirana, 15 november 2007. * * * dear ladies and gentlemen! it is a great pleasure to be here today and open the proceedings of the workshop “ economic research in southeast europe “. first, allow me to express my thanks to the representatives from the respective central banks for their participation in this workshop and all the other guests present today. let us hope that this workshop will serve as a catalyst for a more intensified exchange of experiences among our region in the field of economic research. this process is of special importance with a view to improving the standards of economic research and for enhancing our know - how in this area. undoubtedly, timely and accurate economic research is vital for undertaking more sound economic policies for boosting a stable and non - inflationary growth and for coping with various risks under a dynamic and rapid integration of our economies. from a central bank ’ s viewpoint, economic research should aim at reaching an optimal balance between the significance to the monetary policy or financial stability, their quality and timely availability. when compared to the academic economic research, a central bank ’ s economic research should manifest the same quality, but be positioned on assisting the monetary policy decision - making process. otherwise, their added value is overwhelmingly reduced. the role of research in the monetary policy decision - making process becomes even more important under the inflation targeting regime that the bank of albania will fully adopt in the near future. economic literature defines inflation targeting framework, inter alia, as “ comprehensive and multi - dimensional information, analyses and statistics ”. as in many central banks which adopt the inflation targeting regime, the bank of albania has oriented its resources for economic research, mainly to understanding the process of inflation and of its forecasting, and to understanding the transmission mechanism of monetary policy. the building of a macroeconomic model for the albanian economy is of special importance to the economic research of the bank of albania. moreover, issues related to the real, foreign, financial and the fiscal sectors, as well as other issues related to the improvement of economic statistics are in focus. undoubtedly, the constant improvement of economic research, of their ethics, quality and significance to monetary policy should be of high priority. the bank of albania is conscious of the fact that research in the abovementioned areas should be further consolidated. dear friends! allow me to state my opinion that

. within these constraints, we have acted to reduce financial fragmentation in two key ways. first, we have taken measures to reduce divergence between countries caused by bank funding risk. we have provided unlimited liquidity to banks in need at fixed interest rates, extending the maturity of our operations up to 3 years. we have allowed national central banks to tailor collateral rules to national conditions. and we have narrowed the interest rate corridor between the deposit rate and our main policy rate to 50 basis points, which reduces crosscountry heterogeneity in funding costs. all this was designed to support the transmission of our low interest rates more evenly across the euro area. second, we have taken measures to remove fragmentation caused by redenomination risk. this risk was affecting some countries more than others as markets feared that, if one country were to leave the euro area, a domino effect would force certain others to leave as well. according to calculations, the redenomination premium being paid by spain and italy in july 2012 was up to 2 %. and the threat this posed for future price stability was evident in the cost of deflation protection in the euro area : this rose from 198 bps in january 2012 to a peak of 270 bps in july that year. our answer to this was the outright monetary transactions ( omt ) programme. its effects have so far been powerful, not only in reducing sovereign spreads, but also in improving funding conditions for corporations, banks and individuals across the euro area. financial fragmentation has been reduced, as shown by the best summary indicator, the level of target2 balances. they have declined by 285 billion euros, or 25 %, since the peak last year. bis central bankers ’ speeches it is important to stress, however, that the benefits of lower financial fragmentation are not only being felt in struggling countries. i am aware that some of you here are concerned by the current low interest rate environment, as it reduces income for savers and squeezes returns for pension funds and insurance companies. moreover, some are rightly worried that interest rates that are too low for too long could lead to misallocation of resources and reduce incentives for governments, banks, and corporates to adjust. it is therefore worthwhile to note that the overall improvement of the situation has led to an increase in german government bond yields, which have gone up by around 25 basis points since the announcement of the omt. this demonstrates that the more ecb actions help normalise the financial