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A multiple regression model for inflation rate in Romania in the enlarged EU

Falnita, Eugen and Sipos, Ciprian (2007): A multiple regression model for inflation rate in Romania in the enlarged EU. Published in: Economic integration, competition and cooperation (1. August 2007)

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Abstract

The main goal of Romanian monetary authorities at this point is to maintain the inflation rate in the proposed target. In that respect, the process of disinflation was due to considerably slower raises in administered and volatile prices, whose effects ran counter to the inflationary impact of the newly introduced indirect tax on alcohol and tobacco products. The persistence of inflationary risk associated with the current macroeconomic context, largely as a result of the increasing of some indirect taxes and of fast expansion in domestic demand, prompted the monetary authorities to continue the gradually tighten policy.

Those facts makes necessary to elaborate a model that studies the trend of inflationary process due to most important influence factors. A very important factorial variable is the average interest rate on credit institutions with direct implications in the evolution of the domestic demand. Another variable used by authorities is the minimum reserve requirements on Romanian Leu denominated liabilities. It was increased in the last period to slowing down the speed of growth of credit in domestic currency.

All these conditions are considered in the process of elaboration of the multiple regression models for Romania in the enlarged EU. A very important result of analysis of this model is that the inflation rate in Romania is slowing down, even with the negative impact of price adjustments after integration. Also, the model underlines the National Bank of Romania’s significant tools for apply its monetary policy with the constraints of the EU.

Final conclusions of the analysis of the multiple regression models relieve the necessity to have stronger links of the Romanian economy with the countries from the EU. In the perspective of complete integration, all domains have to connect stronger than now with the European standards. In the same time Romanian people have to understand all the benefits and all the constraints of integration in the enlarged EU.

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