THEORETICAL AND PRACTICAL ASPECTS REGARDING THE EXCHANGE RATE AND THE EQUILIBRIUM EXCHANGE RATE IN ROMANIA

Alina Ailincă (), Camelia Milea and Floarea Iordache
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Floarea Iordache: Centre of Financial and Monetary Research “Victor Slăvescu”, Romanian Academy

Studii Financiare (Financial Studies), 2012, vol. 16, issue 3, 112-125

Abstract: The integration within the Economic and Monetary Union requires the participation to the Exchange Rate Mechanism II (ERM II) and meeting the nominal convergence criteria set by the Maastricht treaty. Under these circumstances, it becomes crucial to establish the central parity upon entering ERM II as close as possible to the exchange rate of equilibrium of the national currency versus the Euro. This would support a harmonious economic development within the ERM II and, subsequently, within the Economic and Monetary Union (EMU). Given the many methodologies of calculation, each one with its advantages and disadvantages, it is extremely difficult to select a specific approach in order to set the nominal and real exchange rate of equilibrium. The aim of this paper is not to set a specific methodology to determine the exchange rate of equilibrium, but to give our personal opinion on the complex issue of the equilibrium exchange rate. Under the current conditions of the, still strong vulnerabilities and tensions due to the effects of the global economic and financial crisis, it is premature to set an exchange rate of equilibrium leu/Euro adequate to the requirements set by the integration within the ERM II, particularly since an inadequate rate might make it difficult to maintain the currency on the variation band imposed by the Maastricht criterium and may even be an invitation for speculative attacks on the national currency, which may cause economic imbalances.

Keywords: exchange rate; exchange rate of equilibrium; exchange rate mechanism; Economic and Monetary Union (search for similar items in EconPapers)
JEL-codes: E42 F15 F31 (search for similar items in EconPapers)
Date: 2012
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