Will there be Deflation and Current Account Surpluses?

In this study we show that inflation rate and current account evolved in line with some historical patterns, once the global financial and economic crisis hit Romania in the latter part of 2008. Core inflation declined at a relatively fast pace for a long period of time. It reached negative values in October 2013 and has remained negative since then. The current account deficit also narrowed sharply, turning into a surplus in the first part of 2013 for the first time in the past 24 years, before reaching a record-low of 1 percent of GDP at end-2013. We show that in Romania the cumulated exports-tocumulated imports index signals the closing (opening) of a deflationary (contractionary) GDP gap when it starts decreasing (increasing). GDP growth moves to relatively high and stable rates two years before a complete closure of a deflationary output gap.