The Assessment of the Prospect of Euro Adoption by Romania and the Other New Member States . An Interdisciplinary Approach Based on a Multi-criteria Analysis with Non-additive Measures

Project type: PNCDI2 Idei 2640, 2008-2011

Amount: 988,787 RON (235,000 EUR)

Project team:

• Ionut Dumitru, PhD

• Bogdan Iftimie, PhD

• Gabriel Bobeica, PhD stud.

• Elena Bojesteanu, PhD stud.

• Nicoleta Ciurila, PhD stud.

• Bogdan Murarasu, PhD stud.

Abstract

The project addresses a highly important issue for Romania's future, namely the adoption of the euro. The main objective of the project is the assessment of the prospect of euro adoption in the time framework specified through Romania's convergence program.

In order to establish the relative position of Romania in the process of nominal and real convergence, the project will perform an ample study which will also comprise the other new member states. The project will be constructed on multiple dimensions: i) the assessment of the current nominal and real convergence level of Romania and the new member states; ii) the synchronization of the business cycles of Romania and the new member states with the business cycle of the euro area; iii) the construction of a forward looking New Keynesian model for Romania; iv) the assessment of the advantages and disadvantages of euro adoption by Romania; v) the development of a methodology used to analyze the decision of euro adoption based on non-additive measures which allow the aggregation of nominal and real convergence criteria.

In the fulfillment of the project, the research team will employ complex mathematic and econometric tools: Kalman and wavelet filters, structural and bayesian VAR models, Markow switching models, dynamic stochastic systems, fuzzy sets and measures, cluster analyses. The subject of euro adoption is approached in an interdisciplinary manner using knowledge from the area of international finance, macroeconomics, mathematics and econometrics. Taking into consideration that the decision of euro adoption is based on a set of nominal and real convergence criteria among which there are complex and sometimes conflicting dependencies, the project proposes a method for aggregating these criteria by defining an integral operator with respect to a non-additive measure.

The expected outcome of the project consists in the rigorous assessment of the decision and of the optimal moment of euro adoption.

Completed objectives

2009

• The evaluation of the current nominal and real convergence level of Romania and the other New Member States

• The synchronization of the business cycles of Romania, the other New Member States and the Euro zone

Papers

• Dumitru, I. and Dumitru, I. (2009) "An Assessment of the Current Account Sustainability in Romania – An Inter-temporal Perspective," Romanian Journal of Economic Forecasting 10(2): 23-41

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