Determinants of the Exchange Rate in Romania: An Empirical Evaluation

In the context of the war in Ukraine, the Covid-19 pandemic, electoral uncertainty, and political instability, understanding the factors influencing the exchange rate allows us to anticipate its appreciation or depreciation so that the risks that arise can be effectively managed. This paper studies the factors influencing the EUR/RON exchange rate using data for the period January 2006 to December 2024. The following influencing factors are taken into account: foreign direct investment, exports, imports, foreign exchange reserves, industrial production index, money supply, consumer price index, interest rate, gold price, USD/RON exchange rate, and the evolution of the stock market. The characteristics of the variables used require their deseasonalization and the use of heteroscedastic models to correct for the lack of homoscedasticity of the errors resulting from the estimation of the model using the least squares method. The results confirm that the most important factors are the price of gold, money supply, and the USD/RON exchange rate.