Potential GDP in Romania

• Author: Duguleana, C. - Duguleana, L.
• Position: Faculty of Economic Sciences and Business Administration, Transilvania University of Brasov
• Pages: 221-228

Bulletin of the Transilvania University of Braşov

Series V: Economic Sciences • Vol. 7 (56) No. 2 - 2014

POTENTIAL GDP IN ROMANIA

C. DUGULEAN;1 L. DUGULEAN;1

Abstract: Economic and financial crisis has hit Romania since the second

half of 2008, causing a significant drop in production and household income.

The consequences of this crisis includ e rising unemployment and falling

household consumption expenditure. Thus, in June 2008, the unemployment

rate was 3.7% and in March 2010 it reached 8.4% level. Final consumption

expenditure of households fell by 9.2% in 2009 and by 3.3% in 2010. The

slowly begun recovery in 2011 revealed that unemployment in the Romanian

economy has a significant structural component. As a result, the potential

GDP remains low. The paper presents a method for estimating the potential

GDP to determine the gap between real GDP affected by cyclical factors and

the productive potential of the economy, used in any circumstances.

Key words: potential GDP, natural rate of unemployment, full employment

1 Faculty of Economic Sciences and Business Administration, Transilvania University of Brasov.

1. Introduction

Productive capacity of an economy is

highlighted potential GDP. According to

Michael Parkin (2005) this indicator

corresponds to the equilibrium in the long

run of the final output which was recorded

over one year in the country, value that can

be achieved if labour resources are fully

occupied. Full use of human resources (full

employment) occurs while the cyclical

unemployment is zero and existing

unemployment is determined only by

structural and frictional unemployment.

Unemployment rate caused by structural

and frictional unemployment is known as

the natural rate of unemployment.

In opinion of Olivier Blanchard (2006),

potential GDP can be also defined as the

level of output corresponding to the

equilibrium state of the economy (steady-

state), characterized by stable inflation,

consistent with an unemployment rate that

does not lead to an acceleration of

inflation, called NAIRU, meaning Non

Accelerating Inflation Rate of

Unemployment. As Dobrescu et al. (2011)

mentioned NAIRU hypothesis is based on

a model of imperfect competition, both in

the labour market and goods market. Some

imperfections, such as trade unions (trade

unions) and the presence of oligopolistic

firms determine the imperfect character of

competition. On labour market through the

collective bargaining process, the demand

is determined by the real wage negotiated

while on the goods market, firms offer

their goods at a given price, which allows

them a higher profit than the normal.

Potential GDP and the difference

between real GDP and potential GDP

(output gap) have been research su bjects a

long time since Arthur Okun (1962), who

first pointed out the importance of these

variables in predicting the cyclical position

of the economy. Nowadays, potential GDP

is widely used in macroeconomic models,

in economic policies analysis, of budget