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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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    1. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
    2. Ben S. Bernanke & Alan S. Blinder, 1988. "Credit, Money, and Aggregate Demand," NBER Working Papers 2534, National Bureau of Economic Research, Inc.
    3. Eichenbaum, Martin, 1997. "Some Thoughts on Practical Stabilization Policy," American Economic Review, American Economic Association, vol. 87(2), pages 236-39, May.
    4. Zoltán M. Jakab & Mihály András Kovács, 2003. "Explaining the Exchange Rate Pass-Through in Hungary: Simulations with the NIGEM Model," MNB Working Papers 2003/5, Magyar Nemzeti Bank (the central bank of Hungary).
    5. 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, vol. 27(2), pages 1-78.
    6. Stephen G. Cecchetti, 1999. "Legal structure, financial structure, and the monetary policy transmission mechanism," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 9-28.
    7. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    8. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    9. Taylor, John B, 1997. "A Core of Practical Macroeconomics," American Economic Review, American Economic Association, vol. 87(2), pages 233-35, May.
    10. Solow, Robert M, 1997. "Is There a Core of Usable Macroeconomics We Should All Believe In?," American Economic Review, American Economic Association, vol. 87(2), pages 230-32, May.
    11. Svensson, Lars E.O., 2010. "Inflation Targeting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 22, pages 1237-1302 Elsevier.
    12. Allan H. Meltzer, 1995. "Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 49-72, Fall.
    13. Mojon, Benoît & Peersman, Gert, 2001. "A VAR description of the effects of monetary policy in the individual countries of the euro area," Working Paper Series 0092, European Central Bank.
    14. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, July.
    15. Blanchard, Olivier, 1997. "Is There a Core of Usable Macroeconomics?," American Economic Review, American Economic Association, vol. 87(2), pages 244-46, May.
    16. Blinder, Alan S, 1997. "Is There a Core of Practical Macroeconomics That We Should All Believe?," American Economic Review, American Economic Association, vol. 87(2), pages 240-43, May.
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