The Application in Romania of Monetary Policy using Taylor Rule

The empirical analysis of the monetary policy strategy applied in Romania is useful for both the economic, and academic environments. To the economic environment, the analysis provides a method for describing the behaviour of the central banks: showing either their use of some monetary rule, or other external factors to guide their strategies. From an academic point of view, this method helps in drawing conclusions, and building opinions, especially in making estimates regarding the guidance of the optimal behaviour of the monetary policy strategy.

The analysis presented by this paper based on the proposal of the American economist Taylor started from the revised Taylor Rule (2002) and aimed at deciding whether the strategy of the National Bank of Romania was guided by the Taylor Rule, by the economic reality, or, rather, by a mix of the two. Thus, an empirical analysis was performed starting from the simple regression, on the data of Romania, to determine if the National Bank followed a Monetary Policy Rule based on Taylor Rule. Using quarterly data for the period 2006Q1-2020Q3, a monetary policy reaction function was estimated, and the results obtained will indicate if the Taylor Rule was applied by the National Bank of Romania.