The Dynamics of the Adjustment Mechanisms to Macroeconomic Shocks. An Analysis from the Perspective of the Establishment of the Central Parity at Euro Zone Accession

Project type: PNCDI2 TE 334, 2010-2013

Amount: 586,650 RON (132,000 EUR)

Project team:

• Ionut Dumitru, PhD

• Elena Bojesteanu, PhD stud.

• Nicoleta Ciurila, PhD stud.

• Bogdan Murarasu, PhD stud.

Abstract

The motivation of the Project resides in a better theoretical and empirical understanding of the mechanisms through which domestic and external shocks are accommodated in the New Member States (NMS), particularly in Romania.

The subject of the Project is extremely important in the view of Romania's commitment to adopt the Euro until 2014-2015, as in that moment monetary policy independence and exchange rate flexibility through the establishment of the central parity will be lost, making a part of the economic adjustment mechanisms unusable.

The central objective of the Project is the study of the adjustment mechanisms to various shocks, especially highlighting the role that the exchange rate has. The research will be structured in three main directions:

All these topics are essential for an optimal establishment of economic policies on the road to Euro adoption. The originality of the Project resides in the comparative approach of the adjustment mechanisms in the context of Euro Area accession for Romania and the other New Member States (NMS) as well as in the subjects considered and the analysis techniques applied, all with a high degree of novelty for Romanian financial and monetary research.

Completed objectives

2010

• Estimating the exchange rate pass-through into inflation.

• The Harrod-Balassa-Samuelson effect and its impact on the nominal and real convergence.

2011

• The establishment of the central parity for the adoption of Euro. The estimation of the equilibrium real exchange rate for the Romanian economy.

• The role of the real exchange rate in insuring international competitiveness.

2012

• The estimation of the current account sustainability - adjustment mechanisms.

• The influence of regional factors on EUR/RON exchange rate developments.

Publications

• Ciurila, N. (2010) "The external competitiveness of the New Member States," Analele Universitatii Constanta, Seria Stiinte Economice X (1): 584 - 587.

• Murarasu, B. (2010) "Recent Macroeconomic Developments in the New Member States," Analele Universitatii Constanta, Seria Stiinte Economice X (1): 740 - 745.

• Dumitru, I. & I. Dumitru (2011) "Similarity of Supply and Demand Shocks between the New Member States and the Euro Zone. The Case of Romania," Romanian Journal of Forecasting 14 (1): 5 - 19.

• Canagarajah, S., Brownbridge, M., Paliu, A. & I. Dumitru (2012) "The challenges to long run fiscal sustainability in Romania," World Bank Policy Research Working Paper Series 5927.

• Bojesteanu, E. & S. Manu (2013) "Empirical analysis of business cycle synchronization and shock similarity between Romania and the Euro Zone," Emerging Markets Finance and Trade (forthcoming).

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