The disinflation process in Romania within the context of the European integration

Abstract

The accomplishment of a high rank of stability of prices represents one of the conditions of the euro currency, therefore inflation represents one major problem for the Romanian monetary authorities.Under these conditions to know the factors that lead to inflationary pressure is necessary in taking monetary policy decisions.This paper analyses the inflation process in Romania after 1990.The purpose is to identify the most important causes which have determined the inflation development in our country. Given the evolution of the inflation rate, we study the inflation phenomenon over the period 1990-1999 (the inflation process) and 2000-2009( the desinflation process). Although, in Romania there has been a powerful disinflationary phenomenon, the consumer price has risen very much in the first years of disinflation process. The increase of inflation in the first decade is determinated by the price deregulation, the wage increase which overcome the increase in labour productivity and the Romanian leu currency devaluation compared to US dollar.In order to achieve my objectives for this paper, I have used monthly data from 2000-2009, using the unifactorial model of regression.The results show that inflation in the period 2000-2009 is determined by wage increase, M2 money supply variation, the exchange rate variation and the international oil price.