Macromodel Simulations for the Romanian Economy

The paper revises the previous author’s estimates of the medium-term evolution of the Romanian economy. It is organized in three chapters. The first examines the most important crisis and post-crisis problems of Romania. The analysis is developed preponderantly from a structural point of view. The second chapter presents three simulated scenarios for the period 2010-2014. One of them (named the Base Scenario BSc) is conceived with macroeconomic parameters close to those envisaged by Government, in correlation with the IMF stand-by Agreement. The other two (the Worsened Scenarios W1Sc and W2Sc) admit less favorable domestic and external business environment. In the final chapter, the results of simulations are compared to each other and also to the officially accepted forecasting documents. Some former similar predictions (anticipating more optimistic indicators) are discussed from the modeling perspective.macromodel, input-output analysis, simulation, scenario, crisis

Macromodel of the Romanian market economy (version 2005)

The macromodel will be used to investigate short and medium–run economic implications of internal policies and of changes in the international context. This new version of the Romanian macromodel benefites from the experience gained by the author during the utilisation of its previous forms - either experimental (tested during 1991-1995) or operational (developed during 1996-2003). At the same time, this model introduces some methodological and informational improvements, in comparison to previous versions. The most significant of them is the structural decomposition of economy, according to the input-output techniques. Output and absorption are divided into: a) agriculture, sylviculture, forestry, hunting, and fishing; b) mining and energy; c) manufacturing industry; d) construction; e) transport, post and communications; f) trade and services. These categories can be easily translated into the classical three-sectors classification: primary (a+b), secondary (c+d), and tertiary (e+f). Due to the relatively advanced stage of the transitional processes in Romania, the behavioural functions were modelled - as much as possible - by the standard relationships. Besides, unlike the previous versions, that used statistical series beginning with 1980, the present one is based exclusively on information regarding the period 1989-2004. Therefore, we have considered more adequate to name this variant the macromodel of the Romanian market (not transition, as before) economy. Since the input-output tables are defined yearly, the model contains only annual indicators. They are expressed in denominated local currency (RON). When there were several informational sources for the same indicator, we preferred the data extracted or derived from national accounts. The statistical series are relatively short and often fractured (because of the transforming processes of transition). Although, it is known that ADF test of stationarity does not offer reliable results in the case of limited number of observations, generally the series satisfying it were used. The Granger causality test was computed for one, two, and three lags. The simplest methods of estimation were also preferred. The structural breaks in the evolution of some indicators have been dealt by the inclusion of dummies. Obviously, all these circumstances weaken the stability of econometric coefficients that must be continuously updated. The main relationships are grouped in seven sections: input-output block; labour market, production function; domestic absorption, foreign trade, prices and exchange rate, and interest rate. The first two chapters present conceptual framework of macromodel and econometric analysis on which it is based. The next one describes a possible scenario for the Romanian economy during 2005-2010 years. The final part of paper contains a set of simulations revealing some operational features of the macromodel.model, input-output analysis, econometric relationships, simulations

Estimating the Total Factor Productivity in Romanian Economy

The paper discusses several problems of estimating the total factor productivity included in the aggregate production function used in the Romanian macroeconomic model. The author suggests an improvement of the formula adopted in the version 2005 of this macro-model.total factor productivity

Double conditioned potential output

The central point of this paper is that both - internal and external - equilibria ought to be involved in the estimation of potential output. If only the data on inflation, unemployment rate and wages are used for its evaluation, no certainty exists that such a level will correspond to a stable foreign trade balance. Our attempt is based on the following methodological assumptions: • the potential output is concomitantly associated with a constant inflation and sustainable relative foreign trade balance (ratio of net export to gross domestic product); • all supply shocks affect this level, potential output being, therefore, a variable indicator; • consequently, the output gap reflects exclusively the demand pressure. The proposed computational algorithm comprises utilisation of orthogonal regression. It is exemplified on seasonally adjusted quarterly statistical series of the Romanian transition economy; this application shows that the output gap really contains significant regular and irregular cyclical components.Potential Output, Output Gap, Orthogonal Regression, Cycle

Some Issues Involved by the Policies Concerning Exchange Rate and Inflation. Quantitative Approach

The paper examines several facets of the interaction between “inflation targeting policy” and “pegged float exchange rate regime”, using the last version of the Romanian macromodel. The implications induced by changes in the following exogenous variables are quantitatively estimated: • CBE – coefficient measuring the Central Bank’s intervention on the forex currency market, which is attached to the equation of the exchange rate, and • CBM - coefficient measuring the Central Bank’s intervention on the domestic monetary market, which is attached to the equation of the reference interest rate. The model simulations refer to leading macroeconomic variables, especially the real economic growth, the foreign trade balance (net exports), the consumer price index, and the nominal exchange rate.exchange rate, reference interest rate, simulations

Updated scenarios for the Romanian economy medium-term dynamics

The current study uses the 2000 version of the Romanian economy macromodel, amended only by up-dating the inflation econometric function. Special attention will be paid to: • the estimations for 2001 ; • the potential impact of the external environment deterioration upon the Romanian economy evolution during 2002; • the medium-term implications.model, simulations, forecasting

Integration of macroeconomic behavioural relationships and the input-output block: Romanian modelling experience

The last version of the Romanian macromodel (Dobrescu 2005b) incorporates the experience accumulated through the utilisation of its previous forms - either experimental (Dobrescu 1991-1994) or operational (Dobrescu 1996-2005a). At the same time, it introduces some methodological and informational improvements. The most significant of them is the structural decomposition of economy, according to the input-output techniques. Output and absorption are divided into: a) agriculture, sylviculture, forestry, hunting, and fishing; b) mining and energy; c) manufacturing industry; d) construction; e) transport, post and communications; f) trade and services. These categories can be easily translated into the classical three-sectors classification: primary (a+b), secondary (c+d), and tertiary (e+f). Due to the relatively advanced stage of the transitional processes in Romania, the behavioural functions were modelled - as much as possible - by the standard relationships. Besides, unlike the previous versions (that used statistical series beginning with 1980) the present one is based exclusively on information regarding the period 1989-2004. Since the input-output tables are defined yearly, the model contains only annual indicators. They are expressed in denominated local currency (RON). The export, import, and exchange rate series were transformed in Euro. When there were several informational sources for the same indicator, the data extracted or derived from national accounts have been adopted. The statistical series are relatively short and often fractured (because of the transforming processes of transition). Although, it is known that ADF test of stationarity does not offer reliable results in the case of limited number of observations, generally the series satisfying it were used. The simplest regression methods were also preferred. The structural breaks in evolution of some series have been dealt by the inclusion of dummies. Obviously, all these circumstances weaken the stability of econometric coefficients that must be continuously updated. The first two chapters of the paper characterise the main macroeconomic behavioural relationships and input-output coefficients. The third one discusses a possible scenario for the Romanian economy during 2005-2010. A set of simulations is presented in the final part of the paper; these reveal some operational features of the macromodel.model, input-output analysis, econometric relationships, simulations

Double-Conditioned Potential Output

The central argument of this paper is that both - internal and external - equilibria should be taken into account in the estimation of potential output. If only the data on inflation, unemployment rate, and wages are used for its evaluation, no certainty exists that such a level will correspond to a stable foreign trade balance. Our attempt is based on the following methodological assumptions: · the potential output is concomitantly associated with a constant inflation and sustainable relative foreign trade balance (ratio of net export to gross domestic product); · all supply shocks affect this level, potential output being, therefore, a variable indicator; · consequently, the output gap reflects exclusively the demand pressure. The proposed computational algorithm is based on the use of orthogonal regressions. It is exemplified on seasonally adjusted quarterly statistical series of variables charaterizing the Romanian transition economy; this application shows that the estimated output gap does contain significant regular and irregular cyclical components. * Paper prepared for the 28th General Conference of The International Association for Research in Income and Wealth, Cork, Ireland, August 22 - 28, 2004.Potential Output, Output Gap, Orthogonal Regression, Cycle.

MODELLING THE ROMANIAN ECONOMY: SOME DATA PROBLEMS

The version 2005 of the Romanian macromodel (Dobrescu 2005, 2006) was built using data for the period 1990 (sometimes 1989) - 2004. This paper insists on three (probably the most complicated) problems: the evaluation of export, import, foreign capital inflows and exchange rate in euros, since the available information was expressed mainly in USD; the computation of more or less credible series regarding the tangible fixed assets, without which any attempt to elaborate an acceptable production function would inherently fail; the estimation of the alpha coefficient, taking into consideration different sources of labor income of households.model, input-output analysis, econometric relationships

Macromodel estimations for the Romanian "pre-accession economic programme

The new (2002) version"" of the "Pre-Accession Economic Programme" has to take into account both the experience accumulated in the implementation of its previous 2001) form, and the changes occurred during 2001-2002 in the domestic and international environment, which have affected the Romanian economy. Obviously, there are numerous questions that should be analysed from this perspective. The paper is covering three groups of issues. The first chapter attempts to define some reference points, which have to be considered during the updating of the Romanian "Pre-Accession Economic Programme". The contents and the main functional characteristics of the macromodel used in the simulations for this purpose are examined in the second chapter. The third chapter discusses the computational hypotheses and presents the numerical estimations for two scenarios, considered by the author as the most relevant for the period 2002-2005. Some concluding remarks close this explorative study.macromodel, forecasting