Currency Fluctuations and Trade Balance: Assessing EUR-ALL Exchange Rate Effects in Albania

This study aims to analyze the relationship between changes in the EUR/ALL exchange rate and the trade balance in Albania, as the main trade partner of Albania is the European Union (using the euro as its currency). In this study, we have analyzed the data for a period of 25 months, June 2021 - August 2023, as this period had a significant change in the exchange rate. For our study, we have used different tests, such as regression, the ADF test, and the Durbin-Watson test. The results demonstrate that changes in the EUR/ALL exchange rate have a strong effect on the trade balance in Albania. A weaker euro (EUR) and a stronger Albanian lek (ALL) cause a 30% drop in the trade balance. These results show how important it is to analyze the EUR/ALL exchange rate and understand the reason for these changes. Those findings can be used by policymakers to avoid unexpected exchange rate changes and reduce effects on the Albanian trade balance.