1. Publications
  2. Occasional publications
  3. Occasional papers


  • Occasional Papers no.37/ 2024
    The Economic Conditions Index for Romania (ECI-RO) and its signals during the recent crises
    Andrei Tănase, Georgiana Pleșa, Dragoș Sîrbu, Vladimir Georgescu
    Sudden changes in the economic environment increased the need to develop high‑frequency “signal” composite indicators that can be swiftly updated. The first role of such signals is to reflect the broad economic activity in a timely manner. The signal allows highlighting the channels through which the economy is affected and thus contributes to nowcasting GDP. However, the spectre of variables and the estimating methodology can limit the signal’s predictive power. From a longer perspective, of great importance is the second role consisting of analysing the characteristics of recent crises as compared to previous ones, such as the financial crisis. In 2020 and early 2021, ECI-RO (the signal estimated using the principal components analysis) captured the sharp worsening of economic conditions in Romania (in particular, industry, services and confidence affected by mobility restrictions), the most severe from a historical perspective, and the swift recovery thereafter. Starting with the second half of 2022 until the end of the sample (2023), ECI-RO was on a downward path, given the multitude of shocks associated with the energy crisis and supply bottlenecks, intensified by the war in Ukraine, however the magnitude of the contraction was significantly lower as compared to the previous crisis.
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  • Occasional Papers no.36/ 2022
    The determinants of net interest margin in the Romanian and Central-Eastern European banking sectors
    Simona Ichim, Angela Pîslaru, Claudia Voicilă
    This paper analyzes the profitability structure of the Romanian banking sector, focusing on the determinants of the main driver of profitability: net interest margin. We investigate the drivers (microeconomic, banking sector specific, macroeconomic)of net interest margin (NIM), in a broader context, by including Central and Eastern European banks. Firstly, we model the allocation of income and expenses to obtain profit margins by business lines at the specific level of the Romanian banking sector. For this purpose,we implement an innovative approach as regards the price of credit risk, quantifying it both as point in time (PiT) and through the cycle (TtC), including the impact of the economic crisis that followed the global financial crisis. Secondly, the determinants of the net interest margin in Romania are highlighted, distinctly for the most consistent loan portfolios (households` mortgage portfolio and non‑financial corporations’ loans), using Bayesian VAR estimates. Last but not least, the study extends the analysis of the main drivers of banks’ net interest margins to ten countries in the Central and Eastern European region using granular, post-global financial crisis data on banks, by implementing GMM panel estimates.
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  • Occasional Papers no.35/ 2022
    Real-time forecasts of economic growth
    Marcel Antonio Sandu, Mădălin Viziniuc
    This paper puts forward a short-term forecasting framework for quarterly GDP growth, which efficiently incorporates the information flow resulting from the publication calendar of monthly indicators. The methodology implies the combination of the distribution densities generated by a wide range of econometric approaches (bridge models, MIDAS models, as well as dynamic factor models and Bayesian VAR models, both with mixed frequencies). This strategy is suitable for application in emerging economies, where ongoing structural changes affecting economic activity, a relatively restricted set of statistical indicators and the brief period they cover, weigh in on the forecasting process and performance. The evaluation that has envisaged successive forecasting rounds since 2013 Q1 (based on the national accounts version available at the time) shows an enhanced ability of the framework to anticipate the GDP growth path, while also revealing a high capacity to incorporate the trend shifts in monthly indicators, the latter aspect proving to be essential for the GDP projection during the downturn caused by the health crisis in 2020. At the same time, the econometric models used feature a high level of complementarity, the exclusion of any of them broadly leading to a deterioration of the forecast accuracy.
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  • Occasional Papers no.34/ 2021
    Revisiting limits and pitfalls of QE in emerging markets
    Daniel Dăianu, Alexie Alupoaiei, Matei Kubinschi
    The pandemic caused by COVID-19 is another huge blow to the world economy after the financial crisis that erupted in 2008. A sanitary crisis has been interweaving with severe economic and social strain following a necessary lockdown for several months during 2020. Although most economies seem to have climbed out of the deep hole caused by The Shutdown, with a current strong economic rebound underway in large parts of the world economy, a longer term recovery is likely to be difficult as it is surrounded by significant uncertainties and contradictory effects. This paper relies on the line of reasoning presented in Dăianu (2020). It highlights the forceful and coordinated policy response in advanced economies in order to deal with the multiple shocks represented by COVID-19. Its main focus is on policy responses in emerging economies, which have tried to replicate measures adopted in advanced economies. The paper highlights significant differences between advanced economies and emerging economies, that must be considered when trying to adopt QE in the latter. The main inference is that there are limits and pitfalls for emerging economies when it comes to practice the policy responses of advanced economies.
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  • Occasional Papers no.33/ 2021
    Investment: What holds Romanian firms back?
    Rozalia Pal, Patricia Wruuck, Amalia Stamate, Constantin Cătălin Dumitrescu
    The paper investigates the reasons behind the subdued investment activity of firms in Romania by drawing on data from the EIB Investment Survey concerning corporate investment in Romania and the information from the Survey on the access to finance of the non-financial corporations in Romania. The paper shows that companies with a weak financial situation or with equity below the regulatory threshold cannot access external financing in order to make investments. The lack of skilled staff and/or the unpredictable economic environment may also hinder higher corporate investment in Romania. In addition, the distribution of dividends can lead to a lower amount of capital being for investment. Furthermore, the paper demonstrates that access to bank financing is directly proportional to the level of corporate investment.
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  • Occasional Papers no.32/ 2021
    A technical toolkit to monitor a pandemic outbreak from a central bank perspective
    Alexie Alupoaiei, Csaba Bálint, Matei Kubinschi
    The COVID-19 pandemic represents a once-in-a-lifetime event, triggering an unprecedented policy response at international level. The present paper draws from cutting edge economic, social and epidemic empirical literature and aims to offer policy-makers a wide set of quantitative tools to monitor the evolution of an epidemic curve in real time, to rank regions by epidemic risk, to assess the impact of restrictive measures and to uncover the relationship between viral spread, mobility and economic activity. Using a broad range of modelling techniques, from econometric to structural approaches, and combining them with qualitative approaches used in other areas such as financial stability dashboards, the holistic approach dives deep into analysing the COVID-19 pandemic in Romania across several dimensions including: regional outbreaks and sub-epidemic waves, counterfactual scenarios based on structural frameworks and optimal lockdown policies, population mobility and initial considerations on the impact on economic activity. Our results are mainly focused on highlighting the insight gained using various modelling approaches, as well as the potential to conduct further assessments and experiments, in order to analyze the behavior of epidemic waves and to uncover the relationship between pandemic outbreaks and the real economy.
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  • Occasional Papers no.31/ 2021
    Recourse and (strategic) mortgage defaults: Evidence from changes in housing market laws
    Alin Marius Andrieș, Anca Mihaela Copaciu, Radu Popa, Răzvan Vlahu
    In this study, we look at the impact of changes in recourse legislation on mortgage defaults. Using a large dataset of mortgage loans granted over the period 2003-2016, we provide evidence that limited lender recourse is an important driver for mortgage delinquency. We find that borrowers that are traditionally considered least likely to default may become increasingly risky when presented with the option of “walking away” by transferring the mortgage ownership to their lender without any deficiency judgments. Our findings highlight the costs associated with debtor-friendly recourse procedures that offer incentives for strategic default.
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  • Occasional Papers no.30/ 2020
    Romania in the loop: An analysis of 155 years of business cycles in historical perspective
    Veaceslav Grigoraș, David Orțan
    This paper dates the business cycles of Romania between 1862 and 2016 for the first time and compares them to those of its peers in the region, but also to those of developed economies. Romania’s interconnectedness with other economies has increased over time: from a largely agricultural economy exposed to wide fluctuations due to crop failures, going through regional integration in the first few decades of the 20th century and forced industrialisation during the communist regime (with an exceptional degree of openness to non-communist economies) and finally reaching European integration as an emerging open economy. The average duration of expansions is the lowest in the sample studied, due to Romania’s highly volatile economy, similar only to that of Greece. The business cycle synchronisation of Romania points towards the significance of its geographical neighbours and of countries in a similar stage of economic development (Bulgaria, Czechoslovakia, USSR, Poland and Hungary).
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  • Occasional Papers no.29/ 2020
    Bank efficiency and staff training policy: Empirical evidence for the Romanian banking sector
    Angela Pîslaru, Matei Kubinschi, Florian Neagu
    The paper aims to provide insight on the link between the quality of bank staff and bank efficiency measures, with implications for asset quality and other banking indicators. It computes cost and revenue efficiency, using a non-parametric production frontier approach (Data Envelopment Analysis), for a wide range of credit institutions in Romania. Dynamics of banking sector efficiency are related to specific banking sector indicators such as size, leverage and concentration, but also to indicators built using specific bank staff and training survey data. Bayesian panel estimation results show that increasing training expenses is beneficial in terms of revenue efficiency in the medium and long run, although in the short-term it naturally implies a lower level of cost efficiency. We find relevant evidence that banks with higher level of staff training are more efficient and more profitable, and display lower non-performing loans ratio after a systemic crisis. These conclusions are also important from a financial stability perspective, highlighting the need for adequate quality of human resources in the banking sector in order to contribute to sustainable financial intermediation and to improve bank efficiency, also by preserving the quality of bank assets in case of a systemic crisis.
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  • Occasional Papers no.28/ 2019
    Predicting the ‘great’ recession and the ‘poor’ recovery – results from a suite of non-linear models for Romania and the Euro Area
    Anca Gălățescu, Vincent Labhard (ECB)
    This paper assesses the predictive performance of a suite of non-linear single‑indicator models (SIMs) in forecasting GDP and the main expenditure components for Romania and the Euro Area around the trough of the Great Recession and during the subsequent recovery. It shows that in the case of both entities and both episodes, the non-linear suite would have provided timely signals of the developments ahead, thus giving forecasters additional lead time for their predictions. It shows also that the advantage of a non-linear SIMs, in terms of both the timeliness of the signal and the more general forecast accuracy, would have been particularly large in the case of the Euro Area and the Great Recession.
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  • Occasional Papers no.27/ 2018
    Identifying the real estate cycle: are housing prices enough?
    Elena Banu, Irina Mihai
    Assessing the real estate cycle has recently grown in importance due to its critical contribution to the financial cycle. Nevertheless, this is an intricate task. The existing literature resorts to housing prices to extract cycle-relevant information, but often countries do not have enough historical data or the available information on housing prices does not reflect all the underlying adjustments in the real estate market. Our paper proposes a new instrument that policymakers can use to assess the real estate cycle, even when facing poor availability and/or low quality of data. In our paper we construct an index and we compare its cycle to the one based on housing prices, for a set of 18 European countries. We look at information obtained on cycle characteristics and on crisis signalling performance. The results show that this new index can successfully be used to extract real estate cycle-relevant information as an alternative to residential property prices.
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  • Occasional Papers no.26/ 2016
    Domestic cycles, financial cycles and policies. What has gone wrong?
    Daniel Dăianu
    The Great Recession and its ensuing effects have brought back into the limelight the issue of cycles, of policies which fuel, or mitigate crises. Cognitive and operational models in economics and business are questioned. There is a specter of much lower economic growth in the industrialized world. Central banks are over-burdened. This makes central bankers’ life much more complicated and obfuscates the delimitations between monetary policy and fiscal policy, especially when financial stability gets to center stage. New systemic risks show up in capital markets. The eurozone has escaped collapse owing to ECB’s extraordinary operations and large macro-imbalance corrections in its periphery, but major threats persist. This paper focuses on economic cycles and policies in an international (European) context. The financial cycle is a key concept in the logic of this paper. The experience of European emerging economies is heavily taken into account. Attention is paid to the linkages between domestic cycles and the “European” financial cycle, drivers of financial cycles, finance deregulation and systemic risks, the international policy regime and global stability.
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  • Occasional Papers no.25/ 2016
    An Age of Ultra-low Interest Rates?
    Daniel Dăianu
    The financial cycle has ended up in a very deep financial crisis. Very low interest rates, ultra-low (even negative) policy rates epitomize this crisis; they have raised concerns about the global economy and have triggered heated debates among economists and decision-makers. Central banks’ officials cite structural conditions as an explanation for the very low interest rates; these conditions are rooted, inter alia, in demographics, technological change, dynamics of productivity gains, the fallout from the financial crisis. All these factors influence the balance between saving and investment in open economies. The IMF also got involved in the debate and argues that low rates are not unjustified in the current context. The BIS, instead, warns about side-effects of non-standard measures. This paper examines causes of ultra low interest rates, the role of monetary policy in depressed economies, prospects for policy rates to rise again, and threats of sudden stops when liquidity is abundant.
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  • Occasional Papers no.24/ 2016
    Adjustments in the balance sheets – is it normal, this “new normal”?
    Liviu Voinea, Alexie Alupoaiei, Florin Dragu, Florian Neagu
    The paper investigates the potential impact of overall debt and sectoral indebtedness (i.e. households, non-financial corporations, government, private, and external) on economic growth. To this end, two quantitative approaches are employed. Firstly, a multivariate panel logit model with fixed effects is used to assess the response of the recession probability to various threshold values of debt across several emerging European economies. Secondly, an asset pricing model is also applied in order to crosscheck the regression results. The study takes a macroprudential perspective, by looking for solutions to reach the intermediate macroprudential objective of preventing excessive indebtedness. One important conclusion the results bring forward is that “one size fits all” type of measures or thresholds might not be the optimal solution, as countries can bear various debt levels. Similarly, the different sectors investigated in this paper proved to have a contrasting resilience to different debt values.
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  • Occasional Papers no.23/ 2016
    Are expatriates managing banks’ CEE subsidiaries more risk-takers?
    Liviu Voinea, Ana-Maria Cazacu, Florian Neagu
    We look at the largest credit institutions in Central and East European countries to better understand the role of expatriates and of other top management teams’ characteristics for banks’ risk profile, strategies and lending activity. We find that the nationality of the management, especially of the CEO, does matter for financial stability. Credit institutions with expatriate CEOs or a larger share of expatriates in the top management team are more risk-takers, as indicated by alternative measures of risk (loan-to-deposit ratio, share of risk-weighted assets and loan loss provisions to total assets). On the other hand, banks managed by expatriates and benefiting to a larger extent from funds granted by the parent financial institution or by other related parties use these resources to deliver more credit to companies and households (as a share in total assets).
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  • Occasional Papers no.22/ 2016
    Estimating a real-time business conditions indicator for Romania
    Andra Smădu, Irina Stanciu, Andrei Tănase
    We estimate a real-time (daily) business conditions indicator using a dynamic factor model that explicitly incorporates economic data measured at different frequencies. The indicator estimated on Romanian data gauges business conditions in an efficient and timely manner, being successful in filtering the information provided by a set of representative variables characterising sovereign risk perception, labour market conditions, investor confidence, and retail sales. We also take advantage of the flexible structure of the model and fit a small open economy setup. A high correlation between the indicator and the quarterly GDP growth recommends its use as a synthetic variable in near-term GDP forecasting models, especially within a central bank inflation forecast exercise.
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  • Occasional Papers no.21/ 2016
    R.E.M. 2.0 - A DSGE model with partial euroization estimated for Romania
    Mihai Copaciu, Valeriu Nalban, Cristian Bulete
    This paper describes the theoretical structure and the estimation results for a DSGE model with partial euroization for the Romanian economy. Having as benchmark the small open economy model augmented with financial and labor market frictions of Christiano et al. (2011), the main additional features we introduce refer to partial euroization in the financial sector and an extension of the foreign sector to a two‑country semi-structural model. Following a depreciation of the domestic currency induced by a sovereign risk premium shock, GDP decreases due to a stronger contractionary balance sheet effect (as some of the entrepreneurs are now exposed to the exchange rate risk) relative to the expansionary impact through the net exports channel. With foreign currency financial transactions taking place only in EUR, while trade in goods and services is carried out in both EUR and USD, external shocks have different effects on the domestic economy, according to the originating country (i.e. the euro area or the US). Thus, one can assess the impact of diverging monetary policies of the ECB and the FED on emerging economies through both financial and trade channels.
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  • Occasional Papers no.20/ 2016
    Jobless recovery in Romania: the role of sticky wages and other frictions. Firm-level evidence from the WDN survey
    Ștefania Cristina Iordache, Mădălina Militaru, Mihaela Luiza Pandioniu
    This paper offers an in-depth analysis of the specific factors behind the jobless recovery in Romania in the aftermath of the crisis. The analysis is based on a unique and rich firm-level dataset stemming from the first labour market survey conducted by the National Bank of Romania in 2014 in cooperation with the WDN, an ESCB research group. The survey focused on assessing labour market adjustments during 2010-2013 and firms’ reaction to labour market reforms that have taken place in Romania starting 2011. The results reveal that Romanian companies perceived moderate upward and downward demand shocks. Also, we found evidence of relatively high degrees of both downward nominal and real wage rigidity, which proved to have played a key role in firms’ decision to destroy or create a job, based on probit model estimates. However, at least in the early recovery phase of the business cycle, our results suggest that wages of newly-hired employees were more pro-cyclical. Other labour market frictions that led to a more pronounced inefficiency of the search and matching process refer to companies’ perception of high payroll taxes, the minimum wage policy, sectoral shifts in the economy, and especially the increasing skill mismatch. As regards the effects of labour market reforms, when asked directly, firms answered they had not perceived any noticeable changes in firing and hiring costs. However, we concluded that some positive developments on the labour market can be associated with structural reforms, mainly those related to reducing working hours due to economic reasons and the use of temporary or fixed-term contracts.
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  • Occasional Papers no.19/ 2016
    The inverse relationship between inflation and unemployment in Romania. How strong was it after the crisis?
    Ștefania Cristina Iordache, Mădălina Militaru, Mihaela Luiza Pandioniu
    The inverse relationship between inflation and unemployment or the Phillips curve, as it is known in the literature, is fundamental in explaining the price setting mechanism. After the crisis, however, macroeconomic models grounded on this theory consistently underestimated price developments, possibly due to an increase in structural unemployment, but also to the weakening intensity of the relationship. A similar phenomenon took place in Romania, as the financial and economic crisis led to a significant loss in terms of jobs, while inflation remained relatively elevated. Therefore, this paper aims to estimate a reduced form of the Phillips curve, not only to test the validity and strength of the relationship, but also to give an estimate of structural unemployment in Romania – which is why we opted for the “triangle” model, underpinning the estimates of the natural rate of unemployment of international institutions such as the OECD, the IMF and the EC. The chosen specification, which includes the unemployment gap, supply-side shocks and adaptive expectations proved suited for capturing the inflation trajectory in Romania. Also, our estimates validate the empirical inverse relationship between inflation and unemployment gap, and reveal an expansion in structural unemployment starting 2011, a trend highlighted by qualitative indicators as well – increase in long-term unemployment and less efficient search&matching process. However, the intensity of the relationship between inflation and unemployment might have also weakened, given the relatively high downward wage rigidity, and the growing importance of external developments in companies’ pricing policy on the domestic market due to globalization. Thus, a simple empirical exercise of relaxing the assumption of linearity in our model revealed the outline of a flattening trend of the Phillips curve starting 2007, but the approach is still preliminary, given the small sample size, covering only one full business cycle.
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  • Occasional Papers no.18/ 2015
    On the exchange rate pass-through in Romania
    Anca Stoian, Bogdan Murarașu
    This study investigates the empirical evidence on exchange rate pass-through (ERPT) into different measures of price indices in case of the Romanian economy. In order to determine the magnitude, identify the asymmetries and characterise the dynamics of ERPT, the paper employs a wide range of econometric approaches comprising time-varying coefficient regression, the Error Correction Model (ECM) and vector autoregression (VAR) models. The robustness of the latter approach is addressed by estimating the VAR on different time spans, using rolling windows, and by techniques such as Threshold VAR, used to capture possible asymmetric effects of episodes of appreciation versus depreciation of the domestic currency, of small versus big changes in the exchange rate and of the inflation rate on the pass‑through magnitude. The main results point to an almost complete pass‑through into import prices on the long term and an incomplete one on the short term; smaller-than-one ERPT coefficients are also obtained for producer prices and for a variety of measures of consumer prices, both on short and longer term. The study identifies statistically and economically significant asymmetries with respect to the sign and size of the exchange rate variation, magnitude of inflation and specific time periods. An important finding consists in clear evidence of a decline over time in the nominal effective exchange rate pass-through magnitude into the various analysed price indices.
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  • Occasional Papers no.17/ 2015
    Building a financial conditions index for Romania
    Andreea Muraru
    As the interaction between the financial sector and the real economy gained higher significance after the outbreak of the economic and financial crisis in the fall of 2008, we propose in this paper a financial conditions index (FCI) – which, while delivering a comprehensive synthesis of the financial conditions for the Romanian economy, also offers a historical perspective and illustrates the factors that underpin its movement (acting towards loosening or tightening). The indicator was built using three methods: weighted averages starting from the impulse-response functions from a vector auto-regression estimated for the selected financial indicators and GDP, principal component analysis and dynamic factor models (DFM) – applied on a large set of financial variables describing the domestic and external financial system. The results show that, regardless of the estimation procedure, the index is an instrument capable of offering a broader picture of the relationship between the financial variables and the real sector, extending/ complementing the information provided by the monetary conditions index; moreover, the FCI proved to be an indicator for near-term economic activity, therefore it can be used in forecasting exercises.
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  • Occasional Papers no.16/ 2015
    Interest rate pass-through in Romania. Recent empirical evidence and regional comparisons
    Raluca Enache, Răzvan Radu
    The paper analyses the interest rate pass-through to lending and deposit rates of non-bank clients in Romania, between 2005 and 2014, examining its potential asymmetries, as well as changes that occurred after the onset of the economic and financial crisis which started at end-2008. In order to make relevant regional comparisons, the same empirical framework is used to study the pass-through parameters in other Central and Eastern European countries: the Czech Republic, Poland and Hungary.
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  • Occasional Papers no.15/ 2015
    Implementing Loan-to-Value and Debt Service-To-Income measures: A decade of Romanian experience
    Florian Neagu, Luminița Tatarici, Irina Mihai
    We describe an example of designing, implementing and calibrating two macroprudential instruments – loan-to-value (LTV) and debt service-to-income (DSTI) – based on a decade of Romanian experience with these tools. We investigate LTV and DSTI effectiveness in trimming down excessive credit growth and in preserving the quality of banks’ loan portfolios. We find strong links between DSTI levels and the debtors’ capacity to repay their debt, underpinning the usefulness of caps for this instrument. We find that an approach based to a large extent on banks’ self-regulation produces suboptimal results, exacerbating the pro-cyclicality in the system. A one‑size-fits-all approach is less effective than tailoring the DSTI and LTV measures based on debtors’ disposable income, the currency of indebtedness and the destination of the loan.
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  • Occasional Papers no.14/ 2015
    Business Cycle Dating and Properties
    Veaceslav Grigoraş, Irina Eusignia Stanciu
    This study dates the business cycles in Romania and analyses their properties. The identification of turning points is based on the BBQ algorithm, which approximates quite well the decisions of the NBER experts for the US business cycles. After identifying the turning points for GDP data, some measures of the business cycles are computed and analysed, such as: amplitude, duration, slope, loss and excess. Afterwards, in order to capture specific cycles, a multivariate analysis is performed on the basis of a broader set of data. Next, the role of shocks in defining the properties of the business cycles is studied within a structural vector autoregressive (SVAR) framework. The last part of the paper analyses the possibility of forecasting recessions.
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  • Occasional Papers no.13/ 2015
    A Central Bank's Dilemmas in Highly Uncertain Times - A Romanian View
    Daniel Dăianu
    This paper looks at policy dilemmas the National Bank of Romania has faced over the years, with the analysis framed in a European and historical context. Some of these dilemmas are of an older vintage, such as how to deal with massive capital flows, how to combat high inflation when resource misallocation is a very burdensome legacy and expectations of high inflation are well entrenched. Other dilemmas are pretty new, or have got salience during the Great Recession. Romania has had to undertake a painful correction of its large macroeconomic imbalances. “Light” inflation targeting has provided leeway for mitigating the fallout from the financial crisis, although high euroization has dented its efficacy. The specter of stagnation in the euroarea, financial deleveraging, unconventional policies which are pursued by key central banks, the ongoing reform of banking regulation and supervision, a growing shadow banking, how will the Banking Union evolve, etc., make up a very complicated European context and pose a range of big challenges for the central banks of New Member States (NMSs).
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  • Occasional Papers no.12/ 2015
    Estimation and forecast of GDP and GDP components with the dynamic factor model. Application for Romania
    Andrei Tănase
    The analysis of economic activity in the current quarter implies underlining the correlation between the dynamics of GDP and GDP components with the dynamics of a large set of economic indicators. In this context, the frequent presence of non-contemporaneous relations adds to the complexity of the analysis. Within a classical econometric model, using a large number of regressors for assessing GDP and GDP components raises parsimony problems, such as testing for the significance of the coefficients. The dynamic factor model answers the need to model variables when we have a large number of regressors. The underlying assumption of the model is that the variation of the entire set of variables can be sufficiently well explained by a reduced number of common factors. Once estimated, the factors can be used as regressors for any variable of interest. In the empirical section of this paper we use the dynamic factor model to estimate and forecast real GDP and GDP components for the current and the next quarter. The methodology for estimating the factors is the one proposed by Forni, Hallin, Lippi and Reichlin. The results can be interpreted as coincident indicators for GDP and as leading indicators for economic activity.
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  • Occasional Papers no.11/ 2015
    Modelling statistical data uncertainty in the context of historical revisions
    Valeriu Nalban
    Official statistical data regarding the dynamics of quarterly national accounts time series are subject to revisions in subsequent releases, because these represent estimations, not exact measures, indicating the uncertainty associated with macroeconomic variables. Revisions are attributed to the release of new information (regarding the developments in certain variables with explanatory power), but also to the improvements in the methodologies used by the official statistics authority. Successive revisions are meant to bring the estimated series closer to the “true” values, but the high probability of recent estimates to be revised induces further obstacles and challenges to economic analysis and forecasting process. In this paper we quantify and analyse the uncertainty surrounding the latest release of seasonally adjusted real GDP (the National Institute of Statistics’ October 2013 release), assuming that the pattern of past revisions represents an optimal approximation for the present uncertainty, the estimation result being the probability distribution of potential future revisions. The representation of the estimated uncertainty using fan charts and the computation of the confidence intervals for historical values reveal the probabilistic nature of the analysed variable.
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  • Occasional Papers no.10/ 2015
    The Price-setting Behaviour of Romanian Firms
    Ștefania Cristina Iordache, Mihaela Luiza Pandioniu
    The price-setting behaviour of firms is relevant for the functioning and efficacy of the monetary policy transmission mechanism. Looking at the findings of a survey conducted among domestic non-financial corporations, this paper aims to examine price setting in the domestic market, as well as companies’ response to various economic shocks. The results reveal that Romanian firms perceive the domestic market as highly competitive and specialised, defined by long-term customer relationships. Across the economy, most companies apply a time-dependent pricing policy, the actual price adjustments occurring solely in the event of semnificative economic environment changes. According to the survey, prices are more likely to react to supply shocks, an increase in costs of raw materials being fairly quickly transferred to prices. On the other hand, companies’ response to a negative demand shock varies across sectors: manufacturing companies opt for decreasing their output level instead of adjusting their prices as is the case with companies operating in agriculture, trade and services, whereas in the mining and construction sectors there is no clearly identifiable strategy. Moreover, the survey includes a subsection dedicated to companies’ wage policy; the answers reveal the existence of nominal wage rigidity, yet a fairly limited recourse to automatic wage indexation schemes.
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  • Occasional Papers no.9/ 2013
    What good is higher inflation? To avoid or escape the liquidity trap// Liquidity, the October 2008 speculative attack and central bank reputation
    Lucian Croitoru
    When governments are over-indebted, it is mainly the role of monetary policy to focus on reflating the economy in order to release it from the liquidity trap. We show that the following problems may arise in this context: linking inflation expectations to base money developments; increased uncertainty on the possible reversal of quantitative easing by central banks in close correlation with banks’ lower liquidity preference after escaping the liquidity trap; higher inflation when central banks fail to reverse the quantitative easing at an adequate pace for a long period; losses reported by central banks once economies exit the liquidity trap and yields go up. Given the recurrence of the instability cycle and the higher probability of the economy to avoid falling into the liquidity trap if inflation is relatively high when a bubble bursts, then such an inflation is preferable to a relatively low one. This paper proposes an enhancement of the monetary policy objective by shifting from explicit or implicit targeting of low and stable inflation to targeting moderate and stable inflation. // This paper discusses the causes that led to an increase in the average interbank money market rate far above the policy rate in the period 17 October – 5 November 2008. Data do not support the assumption that interest rate volatility was generated by inadequate liquidity management in the banking system or by banks’ collateral volume and interbank collateral structure. I present a method of identifying a currency crisis and use it to show that the high interest rate volatility was the result of a speculative attack on the Romanian leu. This has altered liquidity fl ows between credit institutions, thus entailing a higher interest rate. The paper also shows that the central bank tailored its liquidity management to counter the speculative attack and create favorable conditions for the interest rate to return to normal levels. It explains the logic and the reasons behind the speculative attack and shows the role that central bank reputation played during this episode and in the buildup of risks in the run-up to the global financial crisis.
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  • Occasional Papers no.8/ 2010
    Three Unemployment Measures Relevant to Monetary Policy
    Lucian Croitoru
    The paper describes a Neo-Keynesian model, with a standard specification for the utility function and nominal rigidities, in which monopolistic firms have norms and the bargaining power in the wage setting process is variable. Due to the norms, the firms hire workers in excess of the number of employees required by technology. They are efficiency reserves of the firms. We present the implications for the inflation-unemployment trade-off. We proceed in two steps. First, we leave aside the nominal rigidities. The model implies a negative relation between the real wage and the unemployment rate. Besides the natural rate of unemployment, two other unemployment rates are relevant for the decisions. We show that, in the presence of norms, in certain conditions, the bargaining power determines the temporary shift to an alternative wage setting mechanism (AWSM), which eliminates the efficiency reserves. This consists in the simultaneous increase of the real wage and the unemployment rate. The paper presents these conditions. Finally, we introduce nominal rigidities in the form of sticky prices and we derive a negative relation between inflation and unemployment rate. We show that, in the presence of norms, the response of unemployment rate to a change in the monetary policy stance is relatively large. In the case of AWSM, unemployment rate increases without a fall in inflation rate. The monetary policy can only temporarily realign the unemployment rate to the level seen before the use of efficiency reserves at the cost of higher inflation rate.
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  • Occasional Papers no.7/ 2007
    Early Warning System of CAAMPL Rating Downgrade Events
    Bogdan Moinescu
    This study aims to synthetically describe the opportunity of adding to the NBR's microprudential analysis framework a dynamic component, formalised through an early warning instrument of credit institutions whose performances are deteriorating as well as the manner in which the implementation of Basel II Accord requirements might facilitate the refinement of off-site analysis techniques. This project combines elements of heuristic analysis with elements of quantitative assessment, having as main component the development of an econometric model which quantifies the downgrade probability for the CAAMPL bank rating. The explanatory variables identified for the phenomenon of rating downgrade are the current rating, the market share on credit segment, the weight of nonperforming loans in total assets and the square of the deviation of the general risk rate from its natural level. Running this early warning system on the available data as for 31 December 2006 shows that the Romanian banking system will perform during 2007 at least as well as it did in 2006, except for three credit institutions, with an aggregated market share of 2 percent on total assets, for which it is likely that the CAAMPL rating will deteriorate from level 2 in December 2006 to level 3 by December 2007.
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  • Occasional Papers no.6/ 2007
    Potential GDP Estimation for Romania
    Anca Adriana Gălăţescu, Bogdan Rădulescu, Mihai Copaciu
    The paper's objective is to estimate the growth rates of potential GDP for Romania. To this end, is present and implement several univariate and multivariate methods for the measurement of potential GDP growth: production function, filters with unobservable components, structural vector autoregressions. The results are robust to changing approaches and specifications, pointing to an acceleration in the annual growth rate of potential GDP from an average of 3-4 percent between 2000-2002 to values around 6 percent in the recent period.
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  • Occasional Papers no.5/ 2006
    Early Warning Systems on Currency Crises
    Irina Racaru, Mihai Copaciu, Ion Lapteacru
    The paper estimates a model for early warning system on currency crises, based on a sample of emerging countries, including Romania. This analysis is justified by the current context of the Romanian market characterised by gradual capital account liberalisation and focus of the Central Bank on financial and price stability. The factors we have identified with an important impact on the probability of currency crises are: M2/reserves, currency overvaluation. For Romania, the probability of a currency crisis for the next 12 months, estimated for June 2005, is quite low, of 4%, but higher than the value calculated for December 2004, of 1.7%.
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  • Occasional Papers no.4/ 2006
    Non-government credit in Romania: perspectives and implications
    Florian Neagu, Angela Mărgărit, Mihai Copaciu, Irina Racaru, Romulus Mircea, Arpad Andrassy
    This paper has been drafted aiming at clarifying some of the above mentioned concerns, putting more emphasis on the financial stability analysis point of view. In the first part of the paper, is analyze the macroeconomic and financial environment where the increase in credit has been manifested, focusing also on the spreads, as indicators of the efficiency of financial resources allocation. In the second part is investigate the dynamics and the trends of credit to companies and households, while in the third chapter is analyze the main micro and macroeconomic problems and challenges caused by the non-government loan dynamics. The last part presents concluding remarks.
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  • Occasional Papers no.3/ 2003
    Monetary Policy Transmission in Romania
    Dr. Dorina Antohi, Ioana Udrea, Horia Braun
    The goal of the present paper is to identify the main features of the monetary transmission mechanism in Romania. The methods employed for the analysis of the two segments of the monetary transmission mechanism are distinct. In the case of the transmission on monetary policy impulses to the financial variables, we employed an empirical analysis based on Vector Error Correction regressions. The reliability of these results is, however, impaired by the shortness of our data sample.For the analysis of the connection between the financial sector and the real economy - the second segment of the transmission mechanism - the incipiency of the National Bank of Romania's (NBR) monetary transmission mechanism has constrained us to use theoretical intuition alone.
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  • Occasional Papers no.2/ 2002
    Measurement and Assessment of Soft Budget Constraints in Romania
    Lucian Croitoru, Mark Edwin Schaffer
    The objective of this study is to present a comprehensive analysis of soft budget constraints (SBCs) in Romania. We start with a detailed discussion of the emergence of financial indiscipline in Romania and the various responses from Romanian policy-makers: debt clearing schemes, financial isolation and restructuring programmes, and so forth. These schemes were generally ineffective and sometimes made the problem even worse, i.e., the schemes themselves soften budget constraints even further.
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  • Occasional Papers no.1/ 2002
    Direct Inflation Targeting: A New Monetary Policy Strategy for Romania
    Ph.D. Cristian Popa, Surica Rosentuler, Elena Iorga, Wilhelm Salater, Daniela Ruxandra Sasu, Adrian Ionuţ Codirlaşu
    The present paper aims at assessing the general macroeconomic framework adequate for adopting the inflation targeting strategy and the stage Romania currently finds itself from this perspective. Section 1 presents the criteria that the institutional and economic structures of a country must fulfil in order for this strategy to be successfully implemented and the reasons behind their setting. Section 2 analyses whether changing Romania?s monetary policy strategy is appropriate or not by considering five elements characteristic to a certain stage of economic and political development of a country. Section 3 assesses, based on the institutional and economic criteria presented in Section 1, the extent to which Romania is ready to adopt direct inflation targeting. In Section 4 the relevance of the statistical links between different inflation measures (CPI, core inflation) and real, monetary and fiscal variables is tested in order to determine whether building an econometric model for forecasting inflation is feasible.
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