A Macroeconomic Model for Romania's Flexible Exchange Rate System

The transition process of the Romanian economy motivated the design of a model that provides for a parsimonious representation of the structure of the economy, exploits the increased availability of data for the system of national accounts, and recognizes time-variant parameters that can result from the transition process. The major features of the model include (1) the simultaneous determination of the overall production and expenditures of the Romanian economy, (2) the development of income concepts by sector, (3) the determination of wages and prices in each sector, and (4) the determination of value added by the primary and secondary sector within the system of equations. The results allow for considerable flexibility in its usage for forecasting, selection of the policy mix and instruments for the targets of a program, and the determination of the appropriate sequencing of policies. USAID/Romania and National Commission for Economic Forecasting of the Council for Coordination, Strategy, and Economic Reform of the Government of Romania.