Subduing High Inflation in Romania. How to Better Monetary and Exchange Rate Mechanisms?



William Davidson Institute Working Paper 402

---Unemployment rate ------Trend

Figure 3. Unemployment rate, actual and trend (Hodrick and Prescott filter). January
1995 to March 2001.
Source: NBR Monthly Statistical Bulletins

It is also worth mentioning that the Romanian current account balance was in
deficit throughout this period; it reached 7.4% of GDP in 1998 before the financial
crisis, fell to 3.8% of GDP following the balance of payments adjustment of 1999,
and stayed around 4% of GDP in 2000. In early 2001 it started to grow again
worryingly as output picked up. This large external imbalance is a signal of poor
competitiveness of Romanian exports, and perhaps of an overvalued national currency
(in real terms).

Clearly Romania has had major difficulties in achieving successful macro-
stabilisation. All through the nineties, when all other Central and Eastern European
countries made significant progress in this respect, the situation in Romania stalled.
How to explain this outcome? It is well known that there are fundamental
relationships between the microeconomic structure of the economy, the institutions at
work and the macroeconomic performances, but such a theory of comprehensive
reform is beyond the scope of this study. We only comment on the role that the
monetary and exchange rate mechanisms could have in improving the macroeconomic
performance.

6. The Romanian banking system

A two-tier banking system was implemented in Romania at the end of 1990,
made up of a central bank (the National Bank of Romania - NBR) and the credit
institutions (or ordinary banks).

6.1 Ordinary banks and the credit market

Many of credit institutions which exist today took over the incumbent
networks, already in operation under the central plan period. The most important
network builds on the former local branches of the central bank itself; other networks
come from the more specialized financial institutions, like the national investment

12



More intriguing information

1. Proceedings from the ECFIN Workshop "The budgetary implications of structural reforms" - Brussels, 2 December 2005
2. Moffett and rhetoric
3. WP RR 17 - Industrial relations in the transport sector in the Netherlands
4. The name is absent
5. Apprenticeships in the UK: from the industrial-relation via market-led and social inclusion models
6. The Functions of Postpartum Depression
7. Climate change, mitigation and adaptation: the case of the Murray–Darling Basin in Australia
8. The name is absent
9. Integrating the Structural Auction Approach and Traditional Measures of Market Power
10. Global Excess Liquidity and House Prices - A VAR Analysis for OECD Countries
11. Contribution of Economics to Design of Sustainable Cattle Breeding Programs in Eastern Africa: A Choice Experiment Approach
12. Empirically Analyzing the Impacts of U.S. Export Credit Programs on U.S. Agricultural Export Competitiveness
13. INSTITUTIONS AND PRICE TRANSMISSION IN THE VIETNAMESE HOG MARKET
14. Developmental changes in the theta response system: a single sweep analysis
15. The storage and use of newborn babies’ blood spot cards: a public consultation
16. The name is absent
17. Fiscal federalism and Fiscal Autonomy: Lessons for the UK from other Industrialised Countries
18. A Review of Kuhnian and Lakatosian “Explanations” in Economics
19. Cryothermal Energy Ablation Of Cardiac Arrhythmias 2005: State Of The Art
20. Outsourcing, Complementary Innovations and Growth