Disinflation and monetary independence in Romania

Lukasz Goczek

Baltic Journal of Economics, 2015, vol. 15, issue 1, 65-79

Abstract: In this article, the issue of the monetary independence problem in view of the Romania’s European Monetary Union accession is investigated empirically. It is frequently argued that for such a country, the main cost of participation in a currency area is the loss of monetary policy independence. This article raises the question of the actual possibility of monetary independence in a small open economy operating within highly liberalized capital flows and highly integrated financial markets. The main hypothesis of the article is verified using the vector error-correction mechanism model and several parametric hypotheses concerning the speed and asymmetry of adjustment to verify the risk premium and the nature of transmission of the Euribor interest rates on the Romanian Robor. The hypothesis of a one- to-one relationship between interest rates between Romania and the Eurozone cannot be rejected, despite the rapid disinflation at the beginning of the sample.

Keywords: EMU; inflation targeting; monetary policy independence; monetary union; small open economy (search for similar items in EconPapers)
JEL-codes: C32 E43 E52 E58 F41 F42 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:bic:journl:v:15:y:2015:i:1:p:65-79

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