Romania: What a structural model says about growth and inflation

We estimate a structural Bayesian VAR for Romania with nine variables and seven named shocks, anchored on a long-run growth rate of 2.5%. The model answers three questions: how the economy responds to the shocks that hit it, which of those shocks explain the past decade, and what follows for the next four years.

Growth is driven mostly by domestic forces. Supply, demand and the country risk premium together account for about 70% of the unexpected variation in growth over a four-year horizon. Euro Area demand, oil and Euribor explain about half of inflation but only a fifth of output. A monetary tightening works with a lag of one to two years and leaves the level of GDP about 1% lower per 100bp. A rise in the risk premium is a contractionary depreciation. Government purchases carry a one-year multiplier of about 0.9, with wide bands.

The decompositions tell the story of the past decade in those terms: a demand-led boom in 2017, an imported inflation shock in 2022 that explains four fifths of the overshoot, and tax measures behind most of the 2025-26 inflation rebound. In the slowdown since 2025, consolidation and weak external demand weighed first and the risk premium took over in 2Q26. Conditional on consensus, market and in-house paths, growth recovers to around 2% in 2027-28 and inflation returns to 3% by 2028.

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