The Coordonation Of Fiscal And Monetary Policies In Developing Countries. The Case Of Romania

The coordination of fiscal and monetary policies plays an important role in achieving sustainable growth and macroeconomic stability. Although monetary and fiscal policies are considered to be independent, they have the same objectives. There is no agreement in the literature on the hierarchy of the two policies, so their coordination remains in the responsibility of each country. Moreover the economic, political and social situation of each country dictates the mix of the two policies. From a doctrinal point of view, the Keynesians find fiscal policy more effective, while the monetarists conclude that monetary policy has priority. The present paper explores the level of coordination between fiscal and monetary policies in Romania during 2004-2016 using the Set Theoretic Approach (STA). Following the established typologies of the nature of research, this study combines elements from both, the theoretical and empirical sides. In its turn, the empirical research has a qualitative nature combined with quantitative elements. The quantitative nature is given by the analysis of times series on the following macroeconomic variables: budget deficit (percentage of GDP), money supply (percentage of GDP), annual inflation rate and annual GDP. To determine the correlation between the two policies, the GDP, inflation, money supply and the budget deficit are analysed. The econometric methodologies used were applied in RStudio program using time series for the selected indicators. In the first phase, ADF, PP and the KPSS root unit tests were made on the indicators, establishing if the data is stationary. Further on, using the Granger Causality Test, the relationship between the budget deficit and the money supply is discussed. The main findings, according to the STA methodology, generally indicate a weak level of policy coordination estimated to be 30%. A cause for poor coordination of fiscal and monetary, for Romania's case, could be the lack of institutions to ensure good communication and collaboration between authorities. It is worth underlining that in the current context of Romania, solutions must come from a healthy economic vision, based on responsible economic governance. Also, strengthening confidence in public institutions and economic policies are the bases for further development.