European Journal of Interdisciplinary Studies (Jun 2012)
A VAR Analysis on the Monetary Policy Transmission Mechanism in Romania
Abstract
The goal of this paper is to provide a characterisation of the monetary policy transmission mechanism in Romania over the period 2000 - 2011. The main contribution of this paper is the layering of empirical evidence regarding the transmission mechanism split such as to compare the results before and after the implementation of the inflation targeting regime by National Bank of Romania. The methodology used in the article is that of vector autoregressions, a widely used empirical methodology in order to analyse the monetary policy.The results of the analysis show that the National Bank of Romania was more successful in controlling the transmission mechanism after implementing the direct inflation targeting and this monetary regime was properly chosen so as to allow the central bank to deal with the complexity and uncertainty issues raised by the current structural problems of the Romanian economy. Moreover, this strategy provides the National Bank of Romania a similar policy framework to that of the European Central Bank, this fact being an advantage given the desired adoption of the euro.
