Estimating Potential Output in Romania using a Structural VAR

This paper estimates the potential output in Romania using seven structural VAR models. During the period of economic boom the potential GDP growth in Romania was around 6.5 %. The severe economic crisis that started in the last quarter of 2008 generated a significant reduction of the potential output. The potential economic growth dropped at around -2.8 % during the steep contraction of the economy in 2009 and at 1 % in 2010, according to the model estimates. The economic crisis changed significantly the potential growth in Romania due to the structural changes that affected the country. Labor input as well as capital accumulation negatively affected the potential output during the crisis. As regarding the crisis effects on total factor productivity (TFP) in Romania, the connection is uncertain.