IS THE EVOLUTION OF THE EXCHANGE RATE LEU/EURO STILL INFLUENCED BY THE SHOCKS OF INTEREST RATE ON ROMANIAN MARKET?

Gabriela Preda
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Gabriela Preda: Romanian Academy, Bucharest

Theoretical and Applied Economics, 2013, vol. XX, issue Special I, 414-423

Abstract: Given the recent redesigned path of our country to join the Euro area, the economic objectives of macroeconomic stability become fundamental, especially in the current financial crisis frame. Recession, that probably it would be statistically disclosed for 2012, will "destabilize", once more, the stability of macroeconomic indicators. Interest rate and exchange rate are two associated variables that express, as per theory at least, the cost of capital and the state of the economy relative to other economy for which the currencies are compared. Since inflation has been the key objective of the National Bank strategy, the question is whether the change in monetary policy interest rate has effect on exchange rate and, by consequence on inflation. Financial market turmoil and macroeconomic conditions in Romania have reduced the influence of the interest rate on the exchange rate. The present econometric analysis shows that the relationship between the two variables is statistically decreasing.

Keywords: interest rate; exchange rate; financial crisis; inflation; VAR. (search for similar items in EconPapers)
Date: 2013
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