ANALYSIS OF THE INFLUENCE OF ROMANIA’S MONETARY POLICY INTEREST RATE ON THE ANNUAL AVERAGE EURO-RON EXCHANGE RATE

This paper investigates the relationship between the monetary policy interest rate (MPIR) and the annual average euro-ron exchange rate (AAER) using a Vector Error Correction Model (VECM). The analyzed data covers a period of 20 years (2005-2024), and the results indicate the existence of a cointegration relationship between the variables, suggesting a long-term equilibrium. The error correction term is significant for the AAER equation, indicating that AAER adjusts towards the long-term equilibrium determined by MPIR. Additionally, there is a significant short-term relationship between MPIR(-1) and AAER, suggesting that changes in MPIR have an impact on changes in AAER. The VECM model provides a detailed understanding of the dynamic relationship between MPIR and AAER, highlighting both short-term effects and the adjustment towards long-term equilibrium.