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Fiscal Deficits, Monetary Reform and Inflation: The Case of Romania

Author

Listed:
  • Budina, Nina

    (Tinberge Institute Amsterdam, The Netherlands - CERGE-EI Prague)

  • Wijnbergen, Sweder van

    (University of Amsterdam)

Abstract

The main objective of this paper is to explain the phenomena of persistent inflation in Romania through the use of a simple empirical model which highlights the links between inflation and the government budget deficit. We discuss the importance of using a proper definition of the public sector when calculating the public sector deficit and illustrate the impact of using different measures of public sector deficits on the assessment of consistency between monetary and fiscal policy. We then discuss the effect of switching to market interest rates on domestic debt as well as the impact of real exchange rate depreciation and financial sector reform on the financeable deficit and the required deficit reduction for given inflation targets.

Suggested Citation

  • Budina, Nina & Wijnbergen, Sweder van, 1996. "Fiscal Deficits, Monetary Reform and Inflation: The Case of Romania," East European Series 37, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsrop:37
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    File URL: http://www.ihs.ac.at/publications/eco/east/ro-37.pdf
    File Function: First version, 1996
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    More about this item

    Keywords

    Monetary and Fiscal Policy; Inflation; Romania; Real Exchange Rate Dynamics;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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

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