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A VAR Analysis on the Monetary Policy Transmission Mechanism in Romania

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  • BIRMAN Andrei
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    Abstract

    The goal of this paper is to provide a characterisation of the monetary policy transmission mechanism in Romania over the period 2000 - 2011. The main contribution of this paper is the layering of empirical evidence regarding the transmission mechanism split such as to compare the results before and after the implementation of the inflation targeting regime by National Bank of Romania. The methodology used in the article is that of vector autoregressions, a widely used empirical methodology in order to analyse the monetary policy. The results of the analysis show that the National Bank of Romania was more successful in controlling the transmission mechanism after implementing the direct inflation targeting and this monetary regime was properly chosen so as to allow the central bank to deal with the complexity and uncertainty issues raised by the current structural problems of the Romanian economy. Moreover, this strategy provides the National Bank of Romania a similar policy framework to that of the European Central Bank, this fact being an advantage given the desired adoption of the euro.

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    Bibliographic Info

    Article provided by Bucharest Economic Academy in its journal Revista OEconomica 01/2012.

    Volume (Year): (2012)
    Issue (Month): 01 (March)
    Pages:

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    Handle: RePEc:jis:ejistu:y:2012:i:01:id:360

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    Related research

    Keywords: monetary policy transmission mechanism; direct inflation targeting; VAR;

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    References

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    1. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers, Stockholm - International Economic Studies 638, Stockholm - International Economic Studies.
    2. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers, C.V. Starr Center for Applied Economics, New York University 95-15, C.V. Starr Center for Applied Economics, New York University.
    3. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 435-39, May.
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    6. Lars E.O. Svensson, 2010. "Inflation Targeting," NBER Working Papers 16654, National Bureau of Economic Research, Inc.
    7. Eichenbaum, Martin, 1997. "Some Thoughts on Practical Stabilization Policy," American Economic Review, American Economic Association, American Economic Association, vol. 87(2), pages 236-39, May.
    8. Blanchard, Olivier, 1997. "Is There a Core of Usable Macroeconomics?," American Economic Review, American Economic Association, American Economic Association, vol. 87(2), pages 244-46, May.
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    10. Zoltán M. Jakab & Mihály András Kovács, 2003. "Explaining the Exchange Rate Pass-Through in Hungary: Simulations with the NIGEM Model," MNB Working Papers, Magyar Nemzeti Bank (the central bank of Hungary) 2003/5, Magyar Nemzeti Bank (the central bank of Hungary).
    11. Allan H. Meltzer, 1995. "Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(4), pages 49-72, Fall.
    12. Stephen G. Cecchetti, 1999. "Legal Structure, Financial Structure, and the Monetary Policy Transmission Mechanism," NBER Working Papers 7151, National Bureau of Economic Research, Inc.
    13. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
    14. Taylor, John B., 1997. "A Core of Practical Macroeconomics," Choices, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 12(4).
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    16. Blinder, Alan S, 1997. "Is There a Core of Practical Macroeconomics That We Should All Believe?," American Economic Review, American Economic Association, American Economic Association, vol. 87(2), pages 240-43, May.
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