Abstract:

The present paper aims to estimate Romania’s output gap for the period 2003-2018.  For this purpose, we have employed a Bayesian model averaging, which provides an adjustment mechanism for model uncertainty while increasing overall robustness of results.  Using monthly data for GDP, inflation and unemployment for the period between 2003 and 2018, the paper follows the methodology developed in Grant and Chan (2017) in order to measure the output gap for the Romanian economy. The results show that the output gap continuously increased in the years before the financial crisis, followed by a sharp decline in the last quarters of 2008 and 2009, a slow recovery in the subsequent years and an above-potential growth observed in recent years. Regarding the labor market, Romania's economy faced adjustments as a result of the global financial and economic crisis. Trend unemployment faced a downward trend since 2014, reaching record lows of below 6% in 2018, with actual unemployment below 4%, putting upward pressure on wages and affecting labor productivity.