VAR ANALYSIS OF THE TRANSMISSION MECHANISM OF MONETARY POLICY IN ROMANIA

The purpose of this article is to evaluate the efficiency of the monetary policy impulses transmission on inflation and unemployment in Romania, through the interest rate channel and to show the role played by interest rate in the transmission mechanism of monetary policy impulses. I have also revised a variable’s response to the shocks of another variable VAR analysis. VAR analysis on Romania during 2005 - 2013 shows that an interest rate shock can explain the movement in inflation and unemployment rates. We find that there are significant changes in the interest rate based on the inflation rate, and vice versa, due to the relationship of co-integration between variables.