Analysis of Foreign Imbalances and Exchange Rate Policy in the Romanian Economy

Scutaru, Cornelia , Marioara Iordan, Cristian Stanica and  Bianca Pauna
Published in Romanian Journal of Economic Forecasting,
volume 7 issue 4, 2006.

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Considering the previous year's results, the paper re-addresses the issue of inflationary shocks dynamics and the dynamics of the foreign imbalance - induced shocks. The ideea of a correlation between the foreign imbalances and the output gap was first introduced by Acad. Emilian Dobrescu (2004) and provides an answer to certain behaviors specific to the Romanian transition economy. The paper presents an econometric analysis of the foreign imbalances and exchange rate policies, on the basis of certain short-term error-correcting econometric models (mothly data series) that reveal the correlations between the output gap and the foreign and exchange rate imbalances, the adjustment speed to the long-term balance, as well as the reaction towards the stability condition. At this stage, the previous year's results are used .
* Paper worked out with the financial support of the Romanian Academy, within the Grant Project No. 181/2005: "Politici si previziuni macroeconomice bazate pe PIB potential".

Keywords: foreign imbalances, output gap, exchange rate policy
JEL Classification: C32, F31, F32