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Exchange rate determination during hyperinflation: the case of the Romanian lei

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  • Costas Karfakis

Abstract

In this paper the monetarist model of the exchange rate determination during the Romanian hyperinflation is tested using data for the lei/dollar exchange rate. A number of novel findings are reported. In particular, the analysis, which validates the monetarist approach, shows that a rapid increase in the money supply and inflation in Romania has been a source of a depreciating lei, while an increase in the Romanian real income has been a source of an appreciating lei. One policy implication of the results is that any policy aimed at reducing the rate of monetary expansion and inflation, and producing economic growth should boost the value of the lei.

Suggested Citation

  • Costas Karfakis, 2003. "Exchange rate determination during hyperinflation: the case of the Romanian lei," Applied Financial Economics, Taylor & Francis Journals, vol. 13(6), pages 473-476.
    • Handle: RePEc:taf:apfiec:v:13:y:2003:i:6:p:473-476
    DOI: 10.1080/0960310022000020870
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    References listed on IDEAS

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    1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
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    3. Nikitas Pittis, 1999. "Efficient Estimation Of Cointegrating Vectors and Testing for Causality in Vector Autoregressions," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 1-35, February.
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    1. Levent, Korap, 2008. "A monetary model of TL/US$ exchange rate: a co-integrating approach," MPRA Paper 20389, University Library of Munich, Germany.
    2. Chien-Chung Nieh & Yu-Shan Wang, 2005. "ARDL Approach to the Exchange Rate Overshooting in Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 25(1), pages 55-71, August.

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