The reason is that a crisis in a bank can very quickly spread to the rest of the financial system, which can in turn have very costly consequences for the economy as a whole. I shall explain how this comes about. The banks’ traditional business model is to function as an intermediary between, on the one hand households and companies needing credit to buy homes or to get business projects started, and on the other hand households and companies wanting to hold money in accounts for transactions or savings. The banks thus help to transform savings into investment in the economy and contribute to more efficient mediation of payments. This is of course beneficial to the economy as a whole. At the same time, this business model entails significant risks. To put it simply, this is because the bank's assets consist of long-term loans that cannot be quickly and easily converted into cash, while the bank's funding is largely shortterm and volatile. Normally, this does not entail any problems, but if for some reason doubts were to arise with regard to the bank’s ability to pay, the funding could be withdrawn very quickly, and the bank could be forced to default on its payments. Problems in one bank can have serious domino effects As the banks are often interlinked with one another and often have similar types of exposure, problems in one bank can very quickly have serious domino effects in the rest of the financial system.
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 from the strategic point of view the consolidation of research requires the improvement of economic data, the enhancement of cooperation between the public administration institutions and the academia, as well as between various countries, and the absorption and increase of human capacities in this area. Following my speech I would like to briefly explore these three issues. Economic research uses the economic data as its core input.