CURRENT ECONOMIC CRISIS IN LIGHT OF MONETARY THEORY. EVIDENCE FROM ROMANIA AND OTHER EAST-EUROPEAN COUNTRIES

This paper is an empirical investigation of the role of monetary policy in the financial crisis that affected Romania in 2009. We argue that the root of the crisis is to be found in the economic boom that ocurred since 2004, itself a consequence of the loose monetary policy engineered in the same period While largely forgotten during the last decade, monetarist theory about inflation and unsustainable booms plays a critical role when it comes to understand the causes of current economic meltdown. Thus, the origin of current crisis in Eastern Europe can be traced back to the huge inflow of foreign capital and the subsequent cheap credit policy followed by national monetary authorities. Moreover, a currency-board style behaviour is responsible.