Abstract:

The empirical analysis of the monetary policy strategy applied in Romania is useful for both, the economic and the academic environment. As regards the economic environment, the analysis provides a method for describing the behavior of central banks, if it use some monetary rule or Central Bank’s strategy is guided by other external factors. From an academic point of view, this method helps to draw some conclusions, opinions, especially to outline some estimates regarding the guidance of the optimal behavior of the monetary policy strategy.

This paper follows an analysis starting from the revised Taylor Rule (2002) in order to observe if the strategy of the National Bank of Romania is guided by the Taylor Rule or by the economic reality or, rather, is a mix between the two. Thus, an empirical analysis will be performed starting from the simple regression, in the case of Romania, in order to test whether or not the National Bank followed a Monetary Policy Rule based on the proposal of the American economist Taylor. Using quarterly data from 2006Q1-2020Q3, a reaction function of the Central Bank's monetary policy will be estimated, and the results will indicate if the Taylor Rule was applied by National Bank of Romania.