Analysis of Foreign Imbalances and Exchange Rate Policy in the Romanian Economy

Abstract

Considering the previous year's results, the paper re-addresses the issue of inflationary shocks dynamics and the dynamics of the foreign imbalance - induced shocks. The ideea of a correlation between the foreign imbalances and the output gap was first introduced by Acad. Emilian Dobrescu (2004) and provides an answer to certain behaviors specific to the Romanian transition economy. The paper presents an econometric analysis of the foreign imbalances and exchange rate policies, on the basis of certain short-term error-correcting econometric models (mothly data series) that reveal the correlations between the output gap and the foreign and exchange rate imbalances, the adjustment speed to the long-term balance, as well as the reaction towards the stability condition. At this stage, the previous year's results are used .foreign imbalances, output gap, exchange rate policy;