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Fiscal deficits, monetary reform and inflation stabilization in romania

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  • Nina Budina
  • Sweder Van Wijnbergen

Abstract

Fiscal problems are widely recognized as a key factor behind persistent inflation in Eastern Europe post-1989. Deficits need to be cut back, but how much for a given inflation target? We develop a simple framework on debt, deficit and inflation to study the fiscal and monetary policy interactions for the Romanian economy. This framework is employed to assess consistency between inflation, monetary reform and fiscal policy in Romania. First, the direct impact of inflation on fiscal inconsistency measure is assessed. A discussion on the importance of consolidating public sector deficit and its implications for a correct assessment of consistency between monetary and fiscal policy follows. Next, we discuss the implications of exchange rate policy on fiscal sustainability. Finally we alter debt dynamic process to simulate the impact of delaying fiscal adjustment on fiscal sustainability.

Suggested Citation

  • Nina Budina & Sweder Van Wijnbergen, 2001. "Fiscal deficits, monetary reform and inflation stabilization in romania," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 4(3), pages 165-194.
    • Handle: RePEc:taf:jpolrf:v:4:y:2001:i:3:p:165-194
    DOI: 10.1080/13841280108523418
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    Cited by:

    1. Wachtel, Paul & Korhonen, Iikka, 2004. "Observations on disinflation in transition economies," BOFIT Discussion Papers 5/2004, Bank of Finland, Institute for Economies in Transition.
    2. Wachtel, Paul & Korhonen, Iikka, 2004. "Observations on disinflation in transition economies," BOFIT Discussion Papers 5/2004, Bank of Finland Institute for Emerging Economies (BOFIT).
    3. Dumitru, Ionut, 2002. "Money Demand in Romania," MPRA Paper 10629, University Library of Munich, Germany.
    4. Akingbade U. Aimola & Nicholas M. Odhiambo & Christian Nsiah, 2021. "Public debt and inflation nexus in Nigeria: An ARDL bounds test approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 9(1), pages 1921905-192, January.
    5. Nina Budina & Sweder Van Wijnbergen, 2001. "Fiscal deficits, monetary reform and inflation stabilization in romania," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 4(3), pages 165-194.
    6. Luoana D. Santarossa, 2001. "Arrears as a Sign of Financial Repression in Transition Economies - The Case of Romania," CERT Discussion Papers 0104, Centre for Economic Reform and Transformation, Heriot Watt University.

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