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Disinflation and Inflation Targeting in Romania

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  • Daianu, Daniel

    ()
    (Professor of economics at the School of Political and Administrative Studies (SNSPA) in Bucharest and a member of the Romanian Academy)

  • Kallai, Ella

    (Chief economist at Alpha Bank Romania)

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    Abstract

    With a view of enhancing disinflation inflation targeting (IT) was introduced in Romania in mid-2005. Contradictory pressures have challenged ever since the functioning of this monetary policy regime owing to peculiar features and objectives of the Romanian economy. First, the requirements imposed by the achievement of nominal and real convergence in order to join the European Union, and, eventually, the European Monetary Union, ask for sustainable high economic growth and the consolidation of disinflation simultaneously, which is an extremely ambitious task. Second, the economics of inflation targeting tells that the “divine coincidence” of inflation stabilization and real stabilization objectives can be achieved in specific economic circumstances, which might be pretty hard to fulfill in the Romanian economy. Third, the operational requirements of the implementation of a strict inflation targeting regime are unlikely to be met under the current monetary transmission mechanisms; this paper argues that a soft version of inflation-targeting is feasible under the circumstances. Fourth, the integration into global financial market (and a premature opening of the capital account) increases the sensitivity of the economy to external shocks and diminishes the efficiency of an independent monetary policy.

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    Bibliographic Info

    Article provided by Institute for Economic Forecasting in its journal Romanian Journal of Economic Forecasting.

    Volume (Year): 5 (2008)
    Issue (Month): 1 (March)
    Pages: 59-81

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    Handle: RePEc:rjr:romjef:v:5:y:2008:i:1:p:59-81

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    Keywords: inflation targeting; Romania;

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    References

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    1. Lars E O Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Bank of England working papers 56, Bank of England.
    2. Daianu, Daniel & Vranceanu, Radu, 2003. "Subduing High Inflation In Romania. How To Better Monetary And Exchange Rate Mechanisms?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-36, September.
    3. Daniel Daianu & Laurian Lungu, 2007. "Inflation Targeting, Between Rhetoric and Reality. The Case of Transition Economies," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 4(1), pages 39-64, June.
    4. Alexander F. Tieman, 2004. "Interest Rate Pass-Through in Romania and Other Central European Economies," IMF Working Papers 04/211, International Monetary Fund.
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    Cited by:
    1. repec:cmj:journl:y:2013:i:29:cioran is not listed on IDEAS
    2. Zina V.MARCU căs. CIORAN, 2013. "Monetary Policy And The Inflation Targeting Strategy," SEA - Practical Application of Science, Fundația Română pentru Inteligența Afacerii, Editorial Department, issue 2, pages 167-173, October.
    3. Tiwari, Aviral Kumar & Mutascu, Mihai & Andries, Alin Marius, 2013. "Decomposing time-frequency relationship between producer price and consumer price indices in Romania through wavelet analysis," Economic Modelling, Elsevier, vol. 31(C), pages 151-159.

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