Determinants of inflation in Romania: A VAR approach

This paper empirically analyzes the determinants of inflation in Romania using a vector autoregressive (VAR) framework. The study focuses on the role of monetary policy and real economic activity, proxied by the short-term interest rate (ROBOR 3M) and the output gap, in explaining the dynamics of adjusted CORE2 inflation. The model is estimated on quarterly data covering the period 2020-2024. The results indicate a high degree of inflation persistence, with core inflation dynamics being largely driven by its own shocks, while demand-side factors play a secondary but significant role. Monetary policy effects on inflation are found to be moderate and subject to transmission lags.