European Economic Integration and South-East Europe
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European Economic Integration and South-East Europe

Challenges and Prospects

Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald

With both transition dynamics and the EU integration process having shifted to the south-east of Europe, a region fairly marginalized in the literature, this book fills a gap by taking stock of where South-East Europe’s economies and institutions stood in 2004. The authors evaluate the potential for investment and growth within the South-East European region, including the role of trade and FDI, and discuss the challenges associated with unemployment, poverty and ‘brain drain’. The book also provides insights into the particular monetary and exchange rate policies applied, including cases of ‘euroization’, and finally makes an assessment, against this background, of the European perspective of the countries of South-East Europe.
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Chapter 9: Disinflation and monetary policy arrangements in Romania

Daniel Daianu and Ella Kallai


9. Disinflation and monetary policy arrangements in Romania Daniel Daianu and Ella Kallai 1. INTRODUCTION1 Disinflation has been pursued successfully in Romania in recent years. Inflation came down from over 40 per cent in 2001 to 14 per cent in 2003 and 9.3 per cent in 2004. By 2007 it should come down to around 3 per cent. The benefits of a low-inflation environment are unquestionable, as price stability is the ultimate objective of monetary policy. In addition, low inflation is a pre-condition for EU accession. There only remains the other critical question, namely, what is the proper strategy to achieve the ultimate objective? Different central banks have adopted different strategies, placing a different emphasis on the various pieces of information, elements of their decision-making process or different aspects of their communication policies. Inflation targeting (IT) is one of those strategies. The National Bank of Romania (NBR) plans to introduce IT in 2005. This regime brings a series of benefits for a central bank, including a clear policy focus on inflation. At the same time the Romanian central bank needs to unburden its monetary policy to achieve further disinflation. But three main contradictory pressures are likely to arise: first, the requirements imposed by the need to achieve nominal and real convergence with a view to joining the EU in 2007 and European Monetary Union (EMU) at a later stage push the central bank toward a policy...

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