Fiscal and Financial Stability in Romania - An Overview

Florin OPREA, Seyed MEHDIAN, Ovidiu STOICA

Abstract


The recent financial crisis has seriously shaken economies around the world, and raised serious doubts about the long-term viability of the public policies to remedy market imperfections. The effect has been pronounced for Romania, a newly transitioned country with a fragile market economy due to political, economic and social consequents. This paper examines the correlation between fiscal policy and financial stability in Romania in the period from 1990 to 2011. Specifically, we analyze the country’s main monetary and fiscal policy decisions and their associations with macro-economic variables, highlighting the requirements for a sustainable macro-economic policy and whether such requirements have been met in Romania. Based on the results, we further outline recommendations to improve Romania’s public policy initiatives, considering the specific correlations between monetary and fiscal policies. The results for the period under study indicate that fiscal and monetary policies promoted in Romania have not been consistently harmonized, at times lacking necessary mutual support, or even generating conflicting outcomes favorable to the manifestation of fiscal and financial instability.


Keywords


fiscal policies; government debt; monetary policies; financial stability; Romania.

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ISSN– L 2247 – 8310 | ISSN = 1842 – 2845 |  © AP

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