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Stabilization and exchange rate policy in Romania*

Daniel Daianu

The Economics of Transition, 1996, vol. 4, issue 1, 229-248

Abstract: This paper presents the major traits of the stabilization efforts underway, underlining the role of exchange rate policy. The surprisingly good response of the economy to the “policy shock” of 993–1994 is explained by the ubiquitous large X‐inefficiencies and the impact of the foreign exchange market on information and transaction costs. It is argued that restructuring and the imposition of good corporate governance on a wide scale, which are essential for reducing further inflation, need much more capital inflows (foreign direct investment) and the latter can be encouraged by faster privatization. Since systemic strain makes “stop and go” measures almost unavoidable, the challenge for policy‐makers is to avoid policy fluctuations of large amplitude and to enhance steadily their credibility.

Date: 1996
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