An elasticity approach to the analysis of Romanian foreign trade policy during the years of transition

Abstract

Abstract. This paper focuses on the effect of exchange rate variations on the economic evolution of a country in transition, facing inflation, output decrease and negative external shocks; the particular case of Romania is considered. The theoretical part is linked to the Fleming-Mundell model for an open economy, but additional assumptions of price mobility and capital immobility are introduced. The usual interest rate versus output graphic framework is switched from one to another, which plots the exchange rate (or real exchange rate) versus output; the author considers that such a representation fits the behavior of an economy in transition towards a market-based system better. A main role, according to this interpretation, is played by the exchange rate elasticities of imports and exports, which influence the images of the equilibria on the goods market and the balance of payment (the IS and BOP curves' slopes). Finally, an empirical analysis is made, as an example, on the Romanian energy imports data series; the attempts to calculate the exchange rate elasticity may be considered as reliable only in the short term. In order to estimate the global exchange rate elasticities of imports and exports, some aggregations of partial sectorial results might be a possible solution. In the Romanian case, the resulting elasticities seem to be lower than for other countries; this poses the question as to the effectiveness of exchange rate policies in managing the Romanian economy.

Reflections on the Meaning and Measurement of Unobserved Economies: What Do We Really Know About the 'Shadow Economy'?

“…(Campbell, 1975, p.35) The recent inclusion of estimates of the size of the illegal economy in the recorded GDP of some European countries has heightened public skepticism regarding the reliability of the accounts. 22 If we are to gain greater confidence in their reliability, it is incumbent on international statistical organizations to monitor, assess and report on the accuracy of measures of the nonobserved economy that national statistical agencies include in their reported national accounts.…”