THE IMPACT OF THE CURRENT CRISIS ON THE ROMANIAN ECONOMY

Transcription

1 THE IPCT O THE CURRENT CRISIS ON THE RONIN ECONOY BEGU Liviu-Selian 1 DVID Nicolea ISTRTE Ioan 3 1 Professor Economic Cyberneics Saisics and Informaics aculy Deparmen of Saisics and Economerics The cademy of Economic Sudies Romania liviubegu@yahoo.co.uk ssisan Professor Economic Sudies aculy Deparmen of Economic Sudies George Bariiu Universiy Romania nicoleadavid@yahoo.com 3 Junior Teaching ssisan Inernaional Business and Economics aculy Deparmen of Inernaional Business and Economics The cademy of Economic Sudies Romania ioan.israe@homail.com bsrac: The paper is inended o be primarily a facual developmens illusrae he main economic indicaors in he conex of Romania's crisis by creaing a digial picure o illusrae he main effecs of he counry. The idea sared more from a personal desire o make a passage highlighed "he crisis where some of i no fel i direcly seem o be amplified in an unduly by he media. Secondly we proposed he applicaion of an economeric model using as a se of macroeconomic indicaors compiled daa for Romania for he period 001 o 008. This will allow cerain scenarios and forecasing developmens in he conex of model assumpions. noher issue raised by he paper is relaed o he validiy of he model used and how plausible conclusions can be reached afer applicaion. Key words: crisis model endogenous variables exogenous variables JEL classificaion: E01E17 E0 E3 E40 1. Inroducion In early 1960 ederal Deposi Bank of S. Louis (Bari 00 developed in an economic analysis model which sressed he role of moneary aggregaes. Iniial analysis of economic daa was performed using diagrams ha afer 1960 will be used regression echniques as a ool of analysis. Some of he quaniaive research effors were consolidaed in 1970 wih publicaion of wha followed is known as "The S. Louis.. The model S. Louis The firs heoreical consideraion ha underlies he developmen model was he modern quaniaive heory of money. The emphasis of he modern quaniy heory is he behavior of economic unis in response o changes in he sock of money. oreover he exising sock of money mus be held by someone. s a resul a change in he sock of money will induce a discrepancy beween he curren owner and ineresed possession of money ha will change because alernae porfolio of asses. Included in his adjusmen is a change in spending on goods and services. The second heoreical issue ha has been implici in he consrucion of he model alhough no explicily recognized by hose who developed he model a he ime was he search and informaion coss on economic behavior. Informaion on he equilibrium price is no o gaher cos and hus economic unis should seek balance in marke prices. s a resul prices do no necessarily have been adjused insananeously o he new equilibrium level in response o a sep change in oal spending. s a resul of hese heoreical consideraions he relaive impac of fiscal and moneary measures requires careful assessmen. This assessmen includes he differeniaion beween shor and long and graning special focus mehods are o finance governmen expendiure. odel S. Revised Louis "allows analysis and forecasing economic fundamenals following developmens: nominal naional income; level of prices; real naional income; rae of employmen. ll hese issues are raised as a resul of cerain changes o moneary and a cerain variaion of expendiure given he poenial of producion relaed full employmen. The saring poin for his quaniaive analysis is reformulaed heory whose main hesis is ha he evoluion of naional income and prices depend on moneary developmens. 3. The Srucure of he model ain assumpion in developing he model equaions is ha he evoluion of nominal naional income depends on he evoluion of moneary and budgeary. In oher words changes in naional income depend on moneary and fiscal policy. Thus he meri of his model is ha i provides informaion on 97

2 developmens in he basic macroeconomic variables in differen ways of combining measures of moneary and financial policy which allows he design of moneary policy in line wih he overall objecives of economic policy in erms of income naional employmen and prices. Equaion of nominal naional income: ΔY f ( Δ K KKΔ ΔE KKΔE 1 n n (1 Equaion of price level: ( D K D f K n ( Ideniy equaion: D ( X X ΔY 1 (3 Ideniy equaion of oal expendiure (nominal naional income: ΔY + ΔX (4 Equaion of exchange rae: R ( Δ ΔX ΔX f 3 K n (5 Equaion prediced prices: f ( KP 4 1 n (6 Equaion of unemploymen rae: U ( G G f 5 1 (7 Deviaion of GDP acually from poenial GDP: G X X X (8 Equaion (1 expresses he evoluion of nominal naional income in he reference period (ΔY according o he moneary developmens during he period (Δ and in previous periods (Δ -1 -Δ -n and coss budge in he reference period (Δ and in previous periods (Δ -1 Δ - n. Changing he nominal naional income in he reference period (ΔY is defined by ideniy (4 as he amoun of change he real value of naional income calculaed in consan prices (ΔX and he change of prices (. Equaion ( expresses he general movemen of prices in he reference period ( depending on he applicaion period (D and in previous periods (D -1 -D -n and in anicipaion of fuure growh reference o he general level of prices (. Behavior is expressed hrough he demand growh defined by ideniy (3 as he difference beween changing he nominal naional income in he reference period (ΔY on he one hand and spread beween producion poenial associaed full employmen of labor in reference (X and acual producion achieved during he previous period (X -1 on he oher. Thus demand is greaer he spread is less poined and increase naional income in curren period nominal is higher - and vice versa. The price equaion is essenially a Phillips curve in he shor erm exended o include he changes in prices and oal expendiure anicipaed. Equaion (5 defines he 98

3 evoluion rae which depends on: oneary developmens in he curren period (Δ changes in real naional income during ha period (ΔX and in previous periods (ΔX -ΔX -n of price in curren period ( and early evoluion of prices (. Equaion (6 describes he early movemen in he general level of prices ( namely as a variable dependen on previous rends in prices ( n. Employmen equaion in he reference period (7 expresses his degree (U as he coefficien of irregulariy of he acual producion o producion poenial relaed o full employmen in he curren period (G in he previous period (G -1. This coefficien is according o he ideniy (8 he raio beween on he one hand he difference beween producion poenial associaed full employmen in he curren period (X and acual producion during he same period (X on he oher hand he producion poenial period (X. This ransformaion is based on Okun's Law". The relaionship model is a fundamenal equaion of oal expendiure. Toal expendiure is deermined by he acions of moneary and fiscal (spending financed from axes or borrowing from he public. lhough no deails are known is ha such acions affec coss. Change in oal revenue is combined wih an esimae of poenial producion ha leads o he modificaion applicaion. n esimae of he anicipaed price change is combined wih he modificaion reques o deermine a change in he price level. To describe he model is characerisics are summarized in relaion o four key assumpions money. They are: 1. oneary acions are he dominan facor conribuing o economic flucuaions.. oneary acions have lile if any lasing effec on real variables wih effecs lasing only for nominal variables. 3. iscal acions defined as changes in governmen spending wih a given sock of money have only a ransiory impac on economic aciviy. 4. The economy is in a privae sable iner. 4. Effecs of crisis in Romania Under he model assumpions can build naional income equaion in he form of a linear economeric model muli-facorial: I ChGuver α 1 I /1 I / 1 + b (9 where he indicaors used are: real GDP index index of real moneary governmen spending index. ChGuver I I / I / 1 (10 Therefore we inerpre he esimaed parameers as o an increase of 1% of governmen expendiure naional income has increased in he review on average % respecively an increase of 1% of average moneary income of naional increased in he range examined on average % which confirm he heoreical resuls of he influence of fiscal and budgeary policy. To accep he hypohesis of lineariy is calculaes he coefficien of linear correlaion: r ( y x ( yi y( xi x cov σ σ y / x x y nσ xσ y Linear correlaion coefficien is defined in he inerval [-1 1] ha he value obained indicaes a sronger linear correlaion beween he wo variables. Tes isher - Snedecor shows ha he resuls are significan wih a significance hreshold of 5%.. 99

4 > 05 ;; So we can say ha he model is good. Checking he significance of defaul and correlaion coefficien of linear correlaion is done using he es isher - Snedecor: n 1 R > 1 R ;; Therefore he model correcly describes he dependence of he hree variables he independen in explaining he proporion of 93% of oal variaion in he dependen variable. The effecs of economic crisis - evoluionary scenarios If he equaion of our revenue o perform a forecas for nex year afer he scenarios: opimisic and pessimisic. If we consider he following scenario opimisic assumpions: governmen expendiure will increase in real erms by 3% and average money will increase in real erms by 5%. or he pessimisic scenario consider he following assumpions: governmen spending will decrease in real erms by 3% and average money will remain consan. Subsiuing he above equaion for each scenario in par refrained forecas for he period Thus: In he opimisic scenario where he pace of growh will be.5%. If pessimisic scenario was obained a decrease in growh of.5%. Exchange Rae equaion is: R α1ipc I 3I + b (11 where he indicaors used are: ineres rae index of consumer prices moneary mass average GDP dynamics. R IPC I I The ineres rae is influenced by posiive and negaive dynamic pricing dynamics of GDP and he moneary. ll influences are analyzed in accordance wih economic heory. Romanian economy o he equilibrium ineres rae is 10.1%. Influences facors are analyzed as follows: for each percenage increase in he CPI rae increases by 1.73% for a percenage of GDP growh rae falls o % for each percenage increase in moneary leads o lower ineres raes wih 10.73%. The lowes influence has herefore GDP. Coefficien of linear correlaion shows ha here is a srong linear correlaion beween variables ( Tes isher - Snedecor shows ha he resuls are significan wih a significance hreshold of 5%. 854 > 05 ;3;

5 Significance 0.0 <hreshold of significance (0.05. Deduce ha he model is obained semnificaiv. Checking he significance of defaul and correlaion coefficien of linear correlaion is esed using he isher - Snedecor: n 3 1 R > 3 1 R ;3;5 73 Therefore he model correcly describes he dependence of he four variables in explaining he independen proporion of 83% of oal variaion in he dependen variable. Scenarios developmen nd if he ineres rae equaion in our model build a forecas for nex year afer he 3 scenarios: opimisic pessimisic and average. If we consider he following scenario opimisic assumpions: governmen expendiure will increase in real erms by 3% and average money will increase in real erms by 5% and a CPI of 4.5%. or he pessimisic scenario consider he following assumpions: governmen spending will decrease in real erms by 3% and average money will remain consan while he CPI is 3%. Subsiuing he above equaion for each scenario in par refrained forecas for he period Soluions in he shor erm rends indicae libraory ineres rae. Thus he opimisic scenario where he ineres rae would record a level of 8.87% in case of moderae 10.1% while he pessimisic scenario i will rise o 1.7%. Conclusions Curren economic crisis burs ino he U.S. (Daianu 008 o quickly propagaed globally affecing inernaional economic sysem. Pu on he irresponsible policies of financial insiuions he crisis raises worrying quesions abou he securiy. Transmission of he crisis was no only geographically bu also in sociey he financial plan in he real economy boh social and gradually insalled and psychological level. The laer seems o be he mos dangerous conaminans whereas he frozen acions pracically blocking economic growh for fear and misrus. The effecs of he crisis are fel in Romania. This is seen primarily a economic indicaors which afer a period of growh began o come ogeher wih his crisis on a downward rend. Regarding shor-erm evoluion of economy and living sandards in Romania according o evoluionary scenarios oulined in he model S. Louis reviewed he pessimisic scenario (which is mos likely in he curren conex GDP will decrease by.5% and ineres rae (real will be an average of 1.7%. 5. References Bari I. 003 Conemporary global issues Buchares Ed Economica; Greenspan. 008 Was urbulence: advenures in a new world Buchares Ed Public; Daianu D. 008 Teaches us wha he inernaional financial crisis inancial arke June p. 9; Raufer X. 004 The 13 pifalls of global chaos Buchares Ed Corinh; UNCTD secrearia (009 Global economic crisis: implicaions for rade and developmen Geneva Trade and Developmen Board Ludwig von ises "The Causes of he Economic Crisis: n ddress" hp://mises.org/manipulaion/secion3.asp [Dae of access ] hp:// [Dae accessing ] 101