Emergent Markets and Their Dilemmas: The Exchange Rate vs. Its Equilibrium – To Be or Not To Be? Case Study on the EUR/RON Currency (Romania)

Dana-Mihaela Haulica
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Dana-Mihaela Haulica: The Academy of Economic Studies, Romania

from University of Primorska, Faculty of Management Koper

Abstract: We all aim the equilibrium; in our own, very personal understanding, of course. Whether it`s about family, money, health and so on the equilibrium is a state in which we all dream to be at a certain point in time. It`s well understood that a born rich person will have a higher target for this state as well as a healthy young man will have a different understanding regarding the health equilibrium than a 80 years old person. This principle is valid also for larger entities starting with small groups of similar people and arriving to count in this discussion countries, international organizations etc. A country aims to have enough resources to raise, educate and assist its citizens. In order to obtain this, its representants use multiple sets of complex instruments. This article is about the Exchange Rate – a variable that reflects the power of a country, the maturity of its markets, a variable that it is being used as an important instrument for adjusting the trade balance, the GDP etc. If you are running an emergent market its very likely to be key necessary to adjust some of the macroeconomic variables, to bring them to sustainable values on a medium – long term. As mentioned before, one of the most important instruments to do that is the Exchange Rate and its related monetary policy actions. So the dilemma comes from the following: the Equilibrium Exchange Rate on a short term is given by the current values of the macroeconomic variables that you have chosen to take in count (there are several very popular models also for calculating the Equilibrium Exchange Rate as BEER and FEER). But, if your goal is to adjust those macroeconomic values, you have to take action in the present to be able to change something in the future so practically you would need to break the present equilibrium to obtain a sustainable economy on a medium – long term. How this affects present economy and how such a decision is being made – this is what this article aims to present.

Keywords: management; sustainable growth; abstract equilibrium exchange rate; sustainable economy; monetary policy; emergent markets (search for similar items in EconPapers)
Date: 2015
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