Trends in the Interest Rate - Investment - GDP Growth Relationship

by Albu, Lucian-Liviu 
Published in Romanian Journal of Economic Forecasting,
volume 7 issue 3, 2006.

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In the last years it seemed that the Romanian economy leading up to access to the EU was going to enter a new stage, evolving more and more in line with the standard theory. Based on more accurate statistical data for the last years, we try to verify some hypotheses used in the standard economic literature. Also, applying few simple models derived from the standard ones in our experiment we estimated their parameters in the case of Romania in order to obtain an image of the trends in the next period. The two main partial models are referring to the impact of investment on GDP growth rate and to the relation between the interest rate and investment, respectively. Moreover, an equation including inflation dynamics was taken into account. Beginning in 1998, the behaviour of the national economic system and the interest rate - investment - economic growth relationship tend to converge to those demonstrated in a normal market economy and presented in the specialised literature.

Keywords: Investment Rate, GDP Growth Rate, Interest rate, Depreciation Rate, Contour Plot
JEL Classification: C51, E22, E27, P24