THE MONETARY POLICY AND ITS IMPACT ON CONSUMPTION AND TRADE IN ROMANIA

Abstract

The methods that a country's central bank uses to control the total amount of money in circulation and affect trade, consumption, and economic growth are collectively referred to as monetary policy. A monetary expansionary policy entails a reduction in interest rates. As borrowing costs decrease, customers are encouraged to borrow more money and spend more, which boosts consumer spending and promotes economic growth. On the other hand, when interest rates rise during contractionary monetary policy, saving becomes more appealing while borrowing becomes more expensive. As a result, consumers may cut down on spending, which has an impact on aggregate consumption. Businesses are encouraged to invest by lower interest rates brought on by expansionary policies. They may borrow money more cheaply, which boosts imports, company expansion, and capital expenditures. Trade can increase if expansionary measures cause the home currency to weaken and become more appealing to export. In contrast, exports can be hampered by a rising currency. In conclusion, trade dynamics, corporate investment, and consumption patterns should be all greatly impacted by monetary policy measures. In order to find out some evidence about the monetary policy and its impact on consumption and trade in Romania, the paper uses statistical information from the National Bank of Romania between 2003 and 2023 for the monetary policy interest rate. This is going to be assessed base on its impact upon: Final consumption expenditure of general government; Final consumption expenditure of households; Gross capital formation; Exports of goods and services; Imports of goods and services; all of this taken from Eurostat. The results should point out if an increase or decrease of monetary policy interest rate is going to produce an impact upon consumption and trade, or the contrary is going to take place.