A Building Block Approach for Introducing a Positive Neutral Countercyclical Capital Buffer in Albania

The paper discusses the introduction of a positive neutral countercyclical capital buffer (CCyB) for Albania. The building blocks present a step-by-step guide to assess preconditions to be in place. Applied to the case of Albania, authors employ a set of methods for the calibration of a positive neutral rate, including a quantile local projection and stress-test based approach. The paper (i) finds a positive neutral CCyB regime is feasible and net beneficial for Albania, (ii) identifies the adequate range of the positive neutral rate between 100-200bps, and (iii) provides a template for emerging markets to explore positive neutral CCyB regimes.