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Inflation Targeting In Romania in the Perspective of Joining the Exchange Rate Mechanism II

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  • Marius Constantin APOSTOAIE

    (Universitatea „Alexandru Ioan Cuza” din Iasi, Facultatea de Economie si Administrarea Afacerilor, România)

Abstract

Since the early 1990, when the Reserve Bank of New Zeeland instituted for the first time inflation targeting (IT) as its monetary policy framework, IT gained reputation, becoming the monetary regime of choice of many central banks around the world. Among them, the National Bank or Romania changed in mid-2005 the strategy of the monetary policy with IT. As a member of the European Union, Romania’s ultimately aspiration is the adoption of the euro as a means to achieve its objective of full participation in the European Monetary Union. In order to accomplish that, among other nominal and real convergence criteria, Romania must spend at least two years in the ERM II, keeping its exchange rate towards the euro stable, inside a band of ±15%. The purpose of this paper is to identify the challenges of direct IT implementation in Romania in the current context with the perspective of joining the ERM II. We will find out that IT, as current monetary policy strategy, is to be maintained at least until the ERM II entry. After that the NBR’s focus will shift back from price stability to exchange rate stability, and thus, a strict IT framework will not be appropriate anymore (the co-existence of IT with an explicit exchange rate objective being quite problematic). The paper concludes that a soft version of inflation-targeting is more appropriate under the given circumstances.

Suggested Citation

  • Marius Constantin APOSTOAIE, 2011. "Inflation Targeting In Romania in the Perspective of Joining the Exchange Rate Mechanism II," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 4(1(13)), pages 43-56.
    • Handle: RePEc:wun:journl:tje:v04:y2011:i1(13):a06
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    References listed on IDEAS

    as
    1. Ansgar Belke & Thorsten Polleit, 2009. "Monetary Economics in Globalised Financial Markets," Springer Books, Springer, number 978-3-540-71003-5, June.
    2. Daianu, Daniel & Kallai, Ella, 2008. "Disinflation and Inflation Targeting in Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(1), pages 59-81, March.
    3. Gerald A. Epstein & A. Erinc Yeldan (ed.), 2009. "Beyond Inflation Targeting," Books, Edward Elgar Publishing, number 13168.
    4. Fuchun Li & Pierre St-Amant, 2010. "Financial Stress, Monetary Policy, and Economic Activity," Bank of Canada Review, Bank of Canada, vol. 2010(Autumn), pages 9-18.
    5. Michael Dotsey, 2006. "A review of inflation targeting in developed countries," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 10-20.
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    More about this item

    Keywords

    Monetary policy; inflation targeting; european monetary union; ERM II;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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