Vector Error Correction Model in Explaining the Association of Some Macroeconomic Variables in Romania

Abstract

The purpose of this article is to empirically analyze the long and short runs association of some macroeconomic variables in Romania. Variables used across regression include foreign direct investments (FDI), imports, exports, GDP and labour and we also take into account some economic and financial crisis’ influence on these. In order to establish this influence, a dummy was used for the 2008-2012 intsb erval. Then, all variables were found to be integrated of order one I (I). Cointegration was performed under Johansen test and a VECM was applied according to its result. Our model results point on the association between variables on both long and short runs. Then, Granger test under VECM was equally applied in order to establish the uni- or bi-directional causality between variables. We found that the economic crisis actually caused significant influence on FDI, imports, exports and GDP and rather no influence on labor, as reliable resource.