Economics, Econometrics and Finance
4 years ago

Cutting deficits to stabilize inflation: Romania's key to economic success

The Journal of Policy Reform
Fiscal deficits, monetary reform and inflation stabilization in romania
Nina Budina, Sweder van Wijnbergen

Paper Summary

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Persistent inflation in Romania post-1989 is linked to fiscal deficits. To stabilize inflation, deficits must be reduced, but by how much? A framework was developed to analyze the interactions between debt, deficits, and inflation in Romania. The impact of inflation on fiscal inconsistency was assessed, highlighting the importance of reducing public sector deficits. Exchange rate policies also play a role in fiscal sustainability. Delaying fiscal adjustments can have negative effects on fiscal sustainability.