Macroeconomic Implications of the Transition to Inflation Targeting and Capital Account Liberalization in Romania

36 Pages Posted: 9 Feb 2006

See all articles by Pelin Berkmen

Pelin Berkmen

International Monetary Fund (IMF)

Nikolay Gueorguiev

International Monetary Fund (IMF)

Date Written: December 2004

Abstract

In the near future, Romania will introduce inflation targeting and fully liberalize its capital account. This paper aims to analyze, in a dynamic general-equilibrium model with sticky prices and monopolistic competition, how these two profound changes will affect the ability of monetary policy to pursue its objective of price stability. In particular, the resilience of the current and future monetary policy regimes to shocks is evaluated against two welfare criteria: a standard central bank loss function containing the deviations of inflation, output, and the real exchange rate from their equilibrium values, and the compensating variation measure of Lucas (1987).

Keywords: Inflation targeting, Romania, monetary policy, capital account liberalization

JEL Classification: E52, E58, F41

Suggested Citation

Berkmen, S. Pelin and Gueorguiev, Nikolay, Macroeconomic Implications of the Transition to Inflation Targeting and Capital Account Liberalization in Romania (December 2004). IMF Working Paper No. 04/232, Available at SSRN: https://ssrn.com/abstract=879057

S. Pelin Berkmen (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nikolay Gueorguiev

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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