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The impact of the National Bank of Romania Monetary Policy on the Balance of Payments


  • Radulescu, Magdalena

    () (University of Pitesti)


The matter of balance adjustment generates many interesting reflections. For a long time, the equilibrium of the balance of payments was the focus of theoretical debates referring to international economy. At the beginning, it was reduced to the equilibrium of the balance of current transactions. However, the focus still remains on bringing the balance to the state of equilibrium, both in the case of current transactions and in the case of non-monetary operations. The paper presents the main monetary factors that influence the elements of the balance of payments and the direction and path of such influence. Thus, the results can conclude the impact of the NBR monetary policy over the current account and the capital account of the balance of payments. In the first decade of the transition the monetary policy of the NBR was based especially on some very restrictive monetary tools, such as maintaining for a long time a high discount rate and a high rate of the minimum reserves in lei. Their high level, as compared to that of the other economies in transition, has caused the maintaining of high interest rates in the entire banking system, and this has not stimulated the economy and the domestic investments. Moreover, these high rates have not succeeded in attracting the foreign investments, which have dramatically decreased after the boom occurred at the beginning of the ‘90s, because of the domestic economic and political conditions. The conclusion is surprising: the monetary policy of the NBR did not support the efforts for the recovery of the economy. Almost during the entire decade, the monetary policy was harsh, restrictive, basically oriented towards controlling inflation, thus neglecting the other macroeconomic variables, such as the local savings discouraged by the high inflation and the investments that would have supported the economic growth. This has caused major imbalances at the macroeconomic level, which have reflected at all the levels of economy. Among these imbalances, the most important and the one that lasted the longest period of time was the external one. The re-orientation of the policy of theNBR at the beginning of the new decade was meant to support both the objective of the domestic balance and that of the external balance.

Suggested Citation

  • Radulescu, Magdalena, 2007. "The impact of the National Bank of Romania Monetary Policy on the Balance of Payments," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 4(2), pages 26-43, June.
  • Handle: RePEc:rjr:romjef:v:4:y:2007:i:2:p:26-43

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    References listed on IDEAS

    1. Paolo Zanghieri, 2004. "Current Accounts Dynamics in new EU members: Sustainability and Policy Issues," Working Papers 2004-07, CEPII research center.
    2. Guy Debelle & Gabriele Galati, 2007. "Current Account Adjustment and Capital Flows," Review of International Economics, Wiley Blackwell, vol. 15(5), pages 989-1013, November.
    3. Richard H. Clarida & Manuela Goretti & Mark P. Taylor, 2007. "Are There Thresholds of Current Account Adjustment in the G7?," NBER Chapters,in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 169-204 National Bureau of Economic Research, Inc.
    4. Aleksander Aristovnik, 2005. "Current Account Reversals In Selected Transition Countries," International Finance 0510021, EconWPA.
    5. Fratzscher, Marcel & Müller, Gernot J. & Bussière, Matthieu, 2004. "Current accounts dynamics in OECD and EU acceding countries - an intertemporal approach," Working Paper Series 311, European Central Bank.
    6. Sebastian Edwards, 2004. "Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden Stops," NBER Working Papers 10276, National Bureau of Economic Research, Inc.
    7. Muge Adalet & Barry Eichengreen, 2007. "Current Account Reversals: Always a Problem?," NBER Chapters,in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 205-246 National Bureau of Economic Research, Inc.
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    More about this item


    monetary policy instruments; inflation rate; exchange rate; monetary base; foreign direct investments; export; income inflows; portfolio investments inputs; foreign debt service;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements


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