The impact of the Great Recession on the Romanian economy

Rădulescu, Andrei
Publication date: 
JEL codes: 
E23 - Production, E32 - Business Fluctuations; Cycles, E62 - Fiscal Policy, H62 - Deficit; Surplus.
Romanian economy has been strongly affected by the waves of the worst global financial and economic crisis of the past decades. The “sudden stop” of the foreign capital flows during 2008 determined a severe and prolonged macroeconomic adjustment process.This paper estimates the consequences of the Great Recession on the Romanian economy in terms of the potential output. I employ the Hodrick-Prescott filter and the Cobb-Douglas methodology in order to estimate the structural and cyclical components of the GDP for the period 1997-2011. According to the results, the potential GDP deteriorated severely since 2008 (the rhythm declined towards the lowest level since the early 2000s). In other words, the gain of potential output during the last years of the Great Moderation was lost during the years of the Great Recession.Consequently, the recovery of the potential output and the relaunch of the real economic convergence process towards Europe are important medium-term challenges for the Romanian economy. The improvement of the investment climate, the implementation of structural reforms, the prioritization of the Research and Development represent important measures in order to attain sustainable growth on the medium – run.
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