Catching-up Strategies in CESEE Economies
Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 14: Monetary Policy Challenges in the CESEE Region – the Case of Romania
Cristian Popa The aim of this chapter is to illustrate both challenges going forward and things that Romania has had to deal with from the onset of the crisis and even before that. Perhaps contrary to first impressions, the pre- and postcrisis periods are not disconnected, there being both commonalities and idiosyncratic events that characterize each. Let me reiterate the context, and that is of Romania, quite like Poland, Hungary and Croatia, being a small, open economy, which has two things that interest us at this point, amongst many others; one is the sensitivity to the volume, direction and yield of external financing flows, and the other is the realization that full capital mobility for such an economy, and especially for one undergoing fast growth, is a fact of life and one has to take that into the configuration of one’s policy decisions and realize that there are limitations to one’s actions. My first point is about a need that arose, to some extent was met, but will continue to be a challenge for the period ahead: the capacity for monetary policy embedded in the policy mix to be able to execute smooth turns in policy response to shifts in the business cycle phase. What do I mean by that? Initially, going out of the boom period – which obviously meant that monetary policy was more than pulling its weight, being counter-cyclical and trying especially to limit demand growth by limiting growth in foreign exchange lending – we shifted after late 2008...
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