The Impact of Interest Rate, Exchange Rate and European Business Climate on Economic Growth in Romania: An ARDL Approach with Structural Breaks

Mariana Hatmanu, Cristina Cautisanu and Mihaela Ifrim ()
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Mariana Hatmanu: Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iasi, 700505 Iasi, Romania
Cristina Cautisanu: CERNESIM Environmental Research Center, Alexandru Ioan Cuza University of Iasi, 700505 Iasi, Romania

Sustainability, 2020, vol. 12, issue 7, 1-23

Abstract: The role of the interest and exchange rates in sustaining economic growth has been a highly researched subject. Therefore, this study examines the influence of the monetary policy interest rate, the real exchange rate and the business climate in the Euro area on the economic growth in Romania. For this purpose, we have applied a pre-test for structural breaks to identify the existence of structural breaks, followed by the traditional unit root tests and the unit root tests with structural breaks to verify the stationarity of the variables. The results of the Bound cointegration test led to the autoregressive distributed lag (ARDL) short-run model that measures the short-run impact of the interest rate, exchange rate and the business climate in the Euro area on the economic growth of Romania. Our findings show that in the short run, the economic growth is negatively influenced by the interest rate, and positively by the exchange rate. We also indicate that the business climate in the Euro area has mixed effects on the economic growth. Finally, considering the growing interdependence between the internal and external (European) business environment, the results are highly significant for handling the interest and exchange rates in sustaining economic growth.

Keywords: economic growth; unit root tests; multiple structural breaks; Bound cointegration test; econometric model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:12:y:2020:i:7:p:2798-:d:340203

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