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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.

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  • 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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    1. Budina, Nina & Wijnbergen, Sweder van, 1995. "Fiscal Deficits, Monetary Reform and Inflation in Transition Economies: The Case of Bulgaria," East European Series 21, Institute for Advanced Studies.
    2. Sweder van Wijnbergen, 1991. "Fiscal Deficits, Exchange Rate Crises and Inflation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(1), pages 81-92.
    3. Anand, Ritu & van Wijnbergen, Sweder, 1989. "Inflation and the Financing of Government Expenditure: An Introductory Analysis with an Application to Turkey," The World Bank Economic Review, World Bank, vol. 3(1), pages 17-38, January.
    4. Allan Drazen & Elhanan Helpman, 1990. "Inflationary Consequences of Anticipated Macroeconomic Policies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(1), pages 147-164.
    5. Bas Van Aarle & Nina Budina, 1996. "Currency substitution and seignorage in eastern europe," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(3), pages 279-298.
    6. Buiter, Willem H., 1996. "Aspects of Fiscal Performance in some Transition Economies under Fund-supported Programs," CEPR Discussion Papers 1535, C.E.P.R. Discussion Papers.
    7. Kawai, Masahiro & Maccini, Louis J, 1995. "Twin Deficits versus Unpleasant Fiscal Arithmetic in a Small Open Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 639-658, August.
    8. 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.
    9. Budina, Nina & van Wijnbergen, Sweder, 1997. "Fiscal Policies in Eastern Europe," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 13(2), pages 47-64, Summer.
    10. Buiter, Willem H., 1993. "Public Debt in the USA: How Much, How Bad and Who Pays?," CEPR Discussion Papers 791, C.E.P.R. Discussion Papers.
    11. Alogoskoufis, George & Christodoulakis, Nikos, 1990. "Fiscal Deficits, Seigniorage and External Debt: The Case of Greece," CEPR Discussion Papers 468, C.E.P.R. Discussion Papers.
    12. Ritu Anand & Sweder van Wijnbergen, 1988. "Inflation, External Debt and Financial Sector Reform: A Quantitative Approach To Consistent Fiscal Policy With An Application to Turkey," NBER Working Papers 2731, National Bureau of Economic Research, Inc.
    13. Peter Boswijk, H., 1994. "Testing for an unstable root in conditional and structural error correction models," Journal of Econometrics, Elsevier, vol. 63(1), pages 37-60, July.
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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. 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.
    4. Dumitru, Ionut, 2002. "Money Demand in Romania," MPRA Paper 10629, University Library of Munich, Germany.
    5. Akingbade U. Aimola & Nicholas M. Odhiambo, 2021. "Public Debt and Inflation Nexus in Nigeria: An ARDL Bounds Test Approach," Working Papers 2109, African Economic and Social Research Institute (AESRI).
    6. repec:zbw:bofitp:2004_005 is not listed on IDEAS
    7. 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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