Disinflation and Inflation Targeting in Romania

Daniel Daianu (daiandan@b.astral.ro) and Ella Kallai
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Daniel Daianu: Professor of economics at the School of Political and Administrative Studies (SNSPA) in Bucharest and a member of the Romanian Academy
Ella Kallai: Chief economist at Alpha Bank Romania

Journal for Economic Forecasting, 2008, vol. 5, issue 1, 59-81

Abstract: With a view of enhancing disinflation inflation targeting (IT) was introduced in Romania in mid-2005. Contradictory pressures have challenged ever since the functioning of this monetary policy regime owing to peculiar features and objectives of the Romanian economy. First, the requirements imposed by the achievement of nominal and real convergence in order to join the European Union, and, eventually, the European Monetary Union, ask for sustainable high economic growth and the consolidation of disinflation simultaneously, which is an extremely ambitious task. Second, the economics of inflation targeting tells that the “divine coincidence” of inflation stabilization and real stabilization objectives can be achieved in specific economic circumstances, which might be pretty hard to fulfill in the Romanian economy. Third, the operational requirements of the implementation of a strict inflation targeting regime are unlikely to be met under the current monetary transmission mechanisms; this paper argues that a soft version of inflation-targeting is feasible under the circumstances. Fourth, the integration into global financial market (and a premature opening of the capital account) increases the sensitivity of the economy to external shocks and diminishes the efficiency of an independent monetary policy.

Keywords: inflation targeting; Romania (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (8)

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