The Impact of Capital Flows on the Real Exchange Rate: the Case of Romania

This paper examines the influence of the capital flows on the real exchange rate of the Romanian leu against euro. Many studies which are analysing the fundamental determinants of the exchange rate of the leu, show that the appreciation of the currency, before the financial crises from the last years, was due to the real convergence of the Romanian economy. In our study we have showed that the capital account contributed to the appreciation of the leu, rather than the influence of the Harrod-Balassa-Samuelson effect. We found a long-run relationship among the real exchange rate, foreign direct investments and workers remittances from abroad