DRIIE-International economics
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Browsing DRIIE-International economics by Author "Dăianu, Daniel"
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Item A central bank’s dilemmas in highly uncertain times - a Romanian view(Institute for Economic Forecasting, 2015-03) Dăianu, DanielThis paper looks at policy dilemmas the National Bank of Romania has faced over the years, with the analysis framed in a European and historical context. Some of these dilemmas are of an older vintage, such as how to deal with massive capital flows, how to combat high inflation when resource misallocation is a very burdensome legacy and expectations of high inflation are well entrenched. Other dilemmas are pretty new, or have got salience during the Great Recession. Romania has had to undertake a painful correction of its large macroeconomic imbalances. "Light" inflation targeting has provided leeway for mitigating the fallout from the financial crisis, although high euroization has dented its efficacy. The specter of stagnation in the Euro Area, financial deleveraging, unconventional policies which are pursued by key central banks, the ongoing reform of banking regulation and supervision, a growing shadow banking, how will the Banking Union evolve, etc, make up a very complicated European context and pose a range of big challenges for the central banks of New Member States (NMSs).Item A new EU economic governance and fiscal framework : what role for the National Independent Fiscal Institutions (IFIs)?(European Institute of Romania, 2023-06) Dăianu, DanielThe European Commission's communication on orientations for a reform of the European Union's economic governance framework asks the European Fiscal Board (EFB) and national Independent Fiscal Institutions (IFIs) to play a more significant role in it. This vision has plenty of merit, but one needs to be careful in how to implement it. Structural reforms and public investment analysis demand an expertise hardly existing at the level of most national IFIs, and any involvement in policy design would make its assessment tricky when IFIs are part of the process: an inescapable conflict of interest would ensue. It could also be perceived as a technocratic encroachment on a democratic decision-making process. In order to play a more significant role in the EU economic governance framework, national IFIs need more resources according to the EU-wide acceptable standards of operation, and, first of all, they need to bolster their macroeconomic and debt sustainability analysis capabilities.Item EURO zone crisis and EU governance: Tackling a flawed design and inadequate policy arrangements (an essay)(Akademiai Kiado, 2012-09) Dăianu, DanielThis paper focuses on the roots of strain in the European Monetary Union (EMU). It argues that there is need for a thorough reform of the EU governance structure in conjunction with radical changes in the regulation and supervision of financial markets. The EMU was sub-optimal from its debut and competitiveness gaps did not diminish against the backdrop of its inadequate policy and institutional design. The euro zone crisis is not related to fiscal negligence only; over-borrowing by the private sector and poor lending by banks, as well as a one-sided monetary policy also explain this debacle. The EMU needs to complement its common monetary policy with solid fiscal/budget underpinnings. Fiscal rules and sanctions are necessary, but not sufficient. A common treasury (a federal budget) is needed in order to help the EMU absorb shocks and forestall confidence crises. A joint system of regulation and supervision of financial markets should operate. Emergency measures have to be comprehensive and acknowledge the necessity of a lender of last resort; they have to combat vicious circles. Structural reforms and EMU level policies are needed to enhance competitiveness in various countries and foster convergence.Item Overhaul Capitalism to Save Democracy(European Institute of Romania, 2021-06) Dăianu, DanielWhy have our societies become so deeply divided, which is inimical to democracy? How do growing distributional conflicts impact governance structures? Why does fake news take often precedence over truth? What should be done to avert that the rule of law is undermined by the rule of the mob? It may be that the current crises (public health and economic) are harbingers of a new turning point in the evolution of capitalism. This evolution is interlocked with cycles of ideas, of public policies, and institutional change. A mixed economy took shape over time, in which a public sector and a private sector cohabit, based on market dynamism, entrepreneurship, with the shares held by the two sectors shifting in accordance with historical and local conditions. The debate that has started after the outbreak of the last financial crisis is about the path of capitalism, of the mixed economy, of democracy. We need to steer the course of events in the right direction via wise policies. Safeguarding democracy relates to the urgency to deal with climate change as an existential threat.Item Regaining financial stability : taming financial markets is a must - a focus on NMSs(Institute for Economic Forecasting, 2011-06) Dăianu, DanielThe need for a radical overhaul of the regulation and supervision of financial markets has been acknowledged in all advanced economies. And yet, there still is a line ofreasoning which argues that the main source of the current financial crisis is the cheap money of the past, which would have caused large global imbalances as well.But another, that I share, is that something wrong has been occurring with overall financial intermediation in recent decades. This is like saying that structure has been no less important in derailing economies than misconceived policies and unavoidable cyclical dynamics. By structure we mean the configuration of rules and practices in the realm of regulation and supervision, on one hand; and the evolution and practices of financial institutions, including securitization and the growth of the so-called shadow banking sector (which has escaped regulations), on the other hand. Structure has, arguably, influenced policies in view of the relative neglect of systemic risks and the almost blind belief, by some, in the self-regulatory virtues and clairvoyance of financial markets. For a long time financial stability was relegated, de facto, to a second tier policy priority – especially in advanced economies. The current crisis has brought this concern back, with vengeance, and relates it to structure. The “great moderation” reveals itself as a “great misperception” period, which compels a rethinking of regulations and practices, of monetary policy itself (of inflation targeting, too), of the linkages between various domains of economic policy. Nothing seems to be certain any longer, in an increasingly stochastic world. Just think about the huge difference between how Spain and Ireland were judged before and after the eruption of this crisis – with a sharp deterioration of public finances and drastic economic downturn.Item Revisiting Euro Area accession terms : fiscal rectitude is not sufficient!(Akademiai Kiado, 2019-01-01) Dăianu, DanielThis paper argues that there are conditions for successful euro area (EA) accession, apart from fiscal rectitude. One is an ex ante critical mass of real convergence which should enhance lasting nominal convergence. Another condition is an overhaul of EA mechanisms and policies that should make it a properly functioning monetary union, which implies an adequate mix between risk-reduction and risk-sharing. It is argued that risk-sharing cannot be secured by private sector arrangements only. Entering the ERM2 is deemed to be no less demanding than euro area accession per se, especially for countries that use flexible exchange rate regimes. The paper examines also the influence of production (value) chains on the efficacy of autonomous monetary and exchange rate policies when it comes to controlling external imbalances; macro-prudential policies, too, are highlighted in this regard. Steady productivity gains are a must for surmounting the middle income trap and achieving sustainable real convergence.Item Revisiting limits and pitfalls of QE in the emerging markets(Institute for Economic Forecasing, 2022) Dăianu, Daniel; Alupoaiei, Alexie; Kubinschi, MateiThe pandemic caused by COVID-19 is another huge blow to the world economy after the financial crisis that erupted in 2008. A health crisis has been interweaving with severe economic and social strain following a necessary lockdown for several months during 2020. Although most economies seem to have climbed out of the deep hole caused by The Shutdown, with a current strong economic rebound underway in large parts of the world economy, a longer-term recovery is likely to be difficult as it is surrounded by significant uncertainties and contradictory effects. This paper relies on the line of reasoning presented in Daianu (2020). It highlights the forceful and coordinated policy response in advanced economies in order to deal with the multiple shocks represented by COVID-19. Its main focus is on policy responses in the emerging economies, which have tried to replicate measures adopted in the advanced economies. The paper highlights significant differences between the advanced economies and the emerging economies, which must be considered when trying to adopt QE in the latter. The main inference is that there are limits and pitfalls for the emerging economies when it comes to practice the policy responses of the advanced economies.Item Romania's Euro Area accession : the question is under what terms!(European Institute of Romania, 2017-12) Dăianu, Daniel; Kallai, Ella; Mihailovici, Gabriela; Socol, AuraEuro area (EA) accession should mainly depend on the achievement of a critical mass of real and structural convergence, which should diminish the risks to operate in an incomplete monetary union. Accession would also be enhanced by reforms in the functioning of euro area institutions and policies which should deal with asymmetric shocks. We argue that the true stake of euro adoption in Romania should be neither “if’’ nor “when”, but “under what terms” and “how it will be done”. The essential prerequisite for real convergence is raising competitiveness. Our analysis shows common problems regarding competitiveness in new member states in terms of infrastructure, institutional development, business sophistication, innovation; it points out the scale of risks attached to a premature euro area accession. This accession does not require the achievement of the euro area average level of GDP/capita (in PPP terms). As we argue, one can imagine Romania’s accession after having achieved a minimum of 75% of euro area GDP/capita average and the fulfilment of a series of structural conditions against the backdrop of euro area reforms.Item Tax Policy under the Curse of Low Revenues: The Case of Romania (Part I)(Institute for Economic Forecasting, 2012-03) Dăianu, Daniel; Kallai, Ella; Lungu, LaurianThe Romanian tax revenue-to-GDP ratio has been far below the average level of both the European Union and the New Member States for many years. The decade long growth cycle hid significant structural imbalances in the public budget. This paper attempts to identify reasons why tax revenues in Romania are the lowest among the EU-27 countries. It takes a broader perspective by looking at the main sources of tax revenues over the last two decades. Implications of the policy regime change following the introduction of flat tax in 2005 are considered. It also does a few comparisons with other countries from Central and Eastern Europe by looking at the main tax revenue components.Item Tax Policy under the Curse of Low Revenues: The Case of Romania (Part II)(Institute for Economic Forecasting, 2012-08) Dăianu, Daniel; Kallai, Ella; Lungu, LaurianIt is an acknowledged fact that the tax revenue to GDP ratio in Romania is extremely low. This article suggests several ways through which budgetary revenues can be increased and, in the process, strengthen fiscal consolidation. Increasing tax collection rates, combating fiscal evasion and bringing parts of the shadow economy into the open would repair a fractured sentiment of fairness in the Romanian society. In particular, the results in this paper show that public sector revenues could rise by the equivalent of 4% of GDP if only half of the informal economy were to be brought to light.Item When policies fuel economic cycles(Institute for Economic Forecasting, 2017-03) Dăianu, DanielThe Great Recession has brought back into the limelight the issue of cycles, of policies which fuel, or mitigate crises. There is a specter of much lower economic growth in the industrialized world. Central banks are over-burdened. This makes central bankers’ life much more complicated and obfuscates the borders between monetary policy and fiscal policy, especially when financial stability gets to center stage. New systemic risks show up in capital markets. The Eurozone has escaped collapse owing to ECB’s extraordinary operations and large macro-imbalance corrections in its periphery, but major threats persist. This paper focuses on economic cycles and policies in an international (European) context. The financial cycle is a key concept in the logic of this paper. The experience of European emerging economies is taken into account. Attention is paid to linkages between domestic cycles and financial cycles, drivers of financial cycles, finance deregulation and systemic risks, ultra low interest rates, the international policy regime and global stability.Item Which way Goes Romanian Capitalism? - making a case for reforms, inclusive institutions and a better functioning European Union(European Institute of Romania, 2013-12) Dăianu, Daniel; Murgescu, BogdanThis paper examines the Romanian economy and its version of capitalism from a long-term perspective and in a broad context. It focuses on economic prospects in the face of a legacy of backwardness and the endurance of domestic weaknesses, in the context of the Great Recession and the eurozone crisis. Romania has a pressing need to mobilise its internal resources and absorb EU funds on a much greater scale so that it can enhance economic growth and mitigate external shocks. To this end, Romania needs to undertake thorough reforms in the public sector, combat rent-seeking and waste, foster domestic savings. The functioning of institutions and of taxation should convey a sense of fairness to citizens. Romania needs to rethink its growth model. Romania must improve its education system by increasing the level of resources assigned to education and creating coherent policies to strengthen institutional capacities and to improve quality standards. The Romanian economy would benefit significantly from EU policies that are more responsive to the economic and social fractures revealed by the current crisis. Not least, financial markets have to be tamed in Europe and elsewhere if they are to serve economies.