Online ISSN 2286-0266
Print ISSN 1223-0685
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Lucian CROITORU
Banca Naţională a României
In this study we show that the inflation rate and the current account behaved according to historical regularities, once the international crisis hit Romania in the second half of 2008. Inflation has decreased relatively fast for a long period of time, and the current account deficit has reduced drastically, converting itself (for the first time in the last 23 years) in surplus in the first half of 2013. The production gap fell from 9 percent of potential GDP in Q2 2008 to minus 3.7 percent in Q1 2010. Supply-side shocks and relatively high inflation expectations have prevented this gap adjustment from being reflected in the decline of inflation to levels that would have raised the possibility of deflation. Anticipated inflation fell only in few cases below the upper limit of the interval targeted by NBR. Consequently, in the analyzed period, the central bank could only gradually reduce the monetary policy interest rate. We show that, in times of economic boom, when the production gap was positive, the cumulative contribution of net exports to economic growth was negative. Correspondently, during periods when the production gap was negative, net exports had an aggregated positive contribution to economic growth. These data reveal the extremely strong force of the net exports channel to economic growth. We used this relationship to show that the economy could operate with relatively small current account deficits or even with surpluses until 2018 and that the economy will return to relatively high and stable growth rates no sooner than 2016. Moreover, we assert that, if developed countries will continue to remain in the liquidity trap, a relaxation of the monetary policy in Romania will probably become a necessity. If Fed, ECB and Bank of England will give up the quantitative easing policies, then tightening monetary policy may prove mandatory. Finally, we show that it is necessary for the fiscal policy in Romania to continue the relatively small budget deficits and to return to the policy of faster capital expenditures growth, particularly those devoted to infrastructure, compared to transfers and current expenditures. This would ensure public debt reduction and would contribute to long-term productivity growth.

ŒCONOMICA no. 2/2013
Keywords: inflation rate, current account, monetary policy, net exports, productivity, fiscal policy, economic growth
JEL: E43, E58, E62, F32, H54, O23, O47
Are We Going to Have Deflation and Current Account Surpluses? [Vom avea deflaţie şi surplusuri de cont curent?]