1. NBR
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Glossary


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Termen Explication
Acquis communautaire The Acquis communautaire is the entire body of European legislation, including all the treaties, regulations and directives adopted by the European Union and the rulings of the European Court of Justice. The acquis is constantly evolving and includes: - the content, principles and political objectives of the Treaties on which the Union is founded; - legislation and decisions adopted pursuant to the Treaties, and the case law of the Court of Justice; - other acts, legally binding or not, adopted within the Union framework, such as inter-institutional agreements, resolutions, statements, recommendations, guidelines; - joint actions, common positions, declarations, conclusions and other acts within the framework of the common foreign and security policy; - joint actions, joint positions, conventions signed, resolutions, statements and other acts agreed within the framework of justice and home affairs; - international agreements concluded by the Communities, the Communities jointly with their Member States, the Union, and those concluded by the Member States among themselves with regard to Union activities.
Adjusted CORE2 / CORE3 Core inflation measure that excludes from the overall CPI a number of prices on which monetary policy (via aggregate demand management) has limited or no influence: administered prices, volatile prices (of vegetables, fruit, eggs and fuels), tobacco product and alcohol prices. Related terms: CORE1, CORE2, inflation, CPI, core inflation, market prices, administered prices.
Adjustment program A detailed economic program, usually supported by use of IMF resources, that is based on an analysis of the economic problems of the member country and specifies the policies implemented or that will be implemented by the country in the monetary, fiscal, external, and structural areas, as necessary to achieve economic stabilization and set the basis for self-sustained economic growth.
Administered prices Prices of products and services produced or delivered in the country - as output of a natural monopoly -, or that are subject by law to special treatment, as well as those that are supplied by autonomous administrations and state companies. These prices are set and adjusted with the approval of the competent authorities. Related terms: core inflation.
Aggregate demand The total demand for final goods and services in the economy. It is determined as the sum of domestic demand and net exports of goods and services. Related terms: domestic demand.
Aggregate demand shocks Shocks that influence the total income available for spending and that can be generated, for example, by fiscal policy measures (changes in government spending and/or taxes), by changing conditions affecting saving and borrowing (interest rate movements) or fluctuations in trade with other countries (exports and imports).Related terms: aggregate supply shocks.
Aggregate supply The total value of goods and services newly created in an economy during a period. It is determined as a difference between production and intermediate consumption (cost of raw or intermediate materials, of services used in the production process etc.).
Aggregate supply shocks Shocks that influence costs incurred by producers (commodity prices, wages). Related terms: aggregate demand shocks.
Allocation An SDR allocation is a low cost way of adding to members' international reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves. The IMF has the authority under its Articles of Agreement to create unconditional liquidity through "general allocations" of SDRs to participants in its SDR Department (currently, all members of the IMF) in proportion to their quotas in the IMF. Three general allocations and a special one have been made during the time, bringing the total cumulative allocations to about SDR 204 billion.
Article IV Consultation A regular, usually annual, comprehensive discussion between the IMF staff and representatives of individual member countries concerning the member's economic and financial policies. The basis for these discussions is in Article IV of the IMF Articles of Agreement (as amended, effective 1978) which direct the Fund to exercise firm surveillance over each member's exchange rate policies.
Balassa-Samuelson effect Represents the tendency, in countries with higher productivity in the tradable (T) sector as compared to the non-tradable (NT) sector, to record a higher level of inflation and real appreciation of the exchange rate. The effect is associated with the catching-up process of the emerging countries and is favoured by international competition and capital and technology inflows by means of foreign investments in industries that are characterised by a large share of capital and labour in the final product. As, in general, rising productivity favours wages growth, the wages in the T sector will grow faster that in the NT sector. The Balassa-Samuelson effect is based on the hypothesis that on the labour market there will be pressures for the salaries to equalise between the two sectors (or to maintain the relative difference between them). In a context of lower productivity increases, the NT sector cannot cope with these pressures unless increasing the prices in order to reflect the growth in salaries. As a result, the prices of non-tradable goods will increase by a larger amount as compared to the tradable goods. In the case of interdependent economies in the global market, differences in productivity growth between the T and NT sectors lead, due to Balassa-Samuelson effect, to different inflation rates. More precisely, countries with larger productivity differentials between the two sectors have larger inflation rates. As a result, the general price level usually increases more rapidly in emerging countries versus the developed countries, leading to a real appreciation of the exchange rate. Related terms: tradable goods, non-tradable goods.
Bank of International Settlements (BIS) Established in 1930 in Basel, the BIS is the world's oldest international financial organization whose aim is to foster international monetary and financial cooperation and which serves as a bank for central banks.
Base effect The statistical effect exerted by the changes in prices corresponding to a base year on the annual inflation for the subsequent year. Related terms: carry over effect.
Black Sea Trade and Development Bank (BSTDB) The BSTDB is an international financial institution established by Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey, and Ukraine. The Bank supports economic development and regional cooperation by providing trade and project financing and guarantees and equity for development projects supporting both public and private enterprises in its member countries.
Bretton Woods (Conference) The United Nations Monetary and Financial Conference, commonly known as Bretton Woods conference, was a gathering of all 45 Allied nations in 1944 in Bretton Woods, New Hampshire to regulate the international monetary and financial order after the conclusion of World War II and the agreements were signed to set up the International Bank for Reconstruction and Development (IBRD), and the International Monetary Fund (IMF). As a result of the conference, the Bretton Woods system of exchange rate management was set up, which remained in place until the early 1970s.
Broad monetary conditions Evaluate the impact of the dynamics of credit institutions’ interest rates applicable to their non-bank clients, and the real effective exchange rate developments, respectively, on future aggregate demand. The exchange rate influences the real economy through both net exports and wealth and balance sheet effects. Related terms: output gap, the wealth and balance sheet effect.
Business cycle Periodic fluctuations of economic activity around long term growth trend. It consists of periods of expansion, during which the economy is growing fast in real terms, followed by periods of stagnation in which the level of economic activity increases slowly or even decreases. Fluctuations are irregular, with their length and size varying both across space (among countries) and time (over time in the same country).
CORE1 Core inflation measure used by the NBR reflecting changes in market prices; CORE1 is CPI inflation net of administered prices’ dynamics. Related terms: inflation, CPI, core inflation, market prices, administered prices.
CORE2 Core inflation measure used by the NBR reflecting changes in market prices having a relatively low volatility; CORE2 is CPI inflation net of the dynamics of administered prices and the high volatility prices (of vegetables, fruit, eggs and fuels). Related terms: CORE1, inflation, CPI, core inflation, market prices, administered prices.
Carry-over effect The statistical effect that the dynamics of a variable in a base year exerts on the average annual increase in the subsequent year. From a conceptual point of view, this measures the average annual increase of the variable in a certain year that would have prevailed if its level was constant throughout the year and equal to the value registered in the last quarter of the base year (equivalent to a quarterly dynamics equal to zero throughout the current year). Related terms: base effects.
Central bank An institution which - by way of a legal act - has been given responsibility for conducting the monetary policy for a specific area.
Central bank independence The legal provision which guarantees that a central bank can carry out its tasks and duties without political interference. Article 130 TFEU establishes the principle of central bank independence for the euro area.
Competitive imports Goods that are also produced by domestic producers. Related terms: complementary imports.
Complementary imports Goods that are not produced within the domestic economy. Related terms: competitive imports.
Conditionality Economic policies that members intend to follow as a condition for the use of IMF resources. These are often expressed as performance criteria (for example, monetary and budgetary targets) or benchmarks, and are intended to ensure that the use of IMF credit is temporary and consistent with the adjustment program designed to correct a member’s external payments imbalance.
Confidence indicators Represent indices, build upon survey data, that presents in an aggregate form expectations of firms and households regarding future dynamics of incomes, prices etc. They usually have significant predictive power for the dynamics of real variables, entering the class of leading indicators. Among the most often used confidence indicators are those computed by the European Commission (Directorate General for Economic and Financial Affairs) based on a survey among corporations (industry, services, constructions, retail trade) and consumers and have the form of an index expressed in terms of a simple average of the balance of answers to questions specific to the respective sectors. These indicators reflect the general perception and expectations of the economic agents thus offering information on sectorial economic dynamics. DG ECFIN also computes an economy wide confidence index (Economic Sentiment Indicator - ESI) which brings together in a single indicator the dynamics of the five sectors for which the survey is conducted. Related terms: leading indicators.
Constituency The IMF and World Bank member countries are represented by 24 Executive Directors, out of which five are appointed (US, Japan, Germany, France, and the United Kingdom), and a further three represent a single country (Saudi Arabia, Russia, and the People’s Republic of China). The remaining sixteen are elected by groups of countries, called “constituencies”. These groups range in size from the four-country constituency to the twenty-four country constituency.
Consumer price index; CPI Measure of price variation computed by the National Institute of Statistics by comparing retail prices of a basket of goods and services representative for household’s consumption. Related terms: inflation, core inflation.
Contractionary monetary policy Monetary policy stance that results in the slowdown of the growth of aggregate demand in order to support disinflation.
Convergence criteria The four criteria set out in Article 140(1) TFEU that must be fulfilled by each EU Member State before it can adopt the euro, namely a stable price level, sound public finances (a deficit and a level of debt that are both limited in terms of GDP), a stable exchange rate and low and stable long-term interest rates. In addition, each EU Member State must ensure the compatibility of its national legislation, including the statutes of the national central bank, with both the TFEU and the Statute of the European System of Central Banks and of the European Central Bank.
Copenhagen criteria (accession criteria) The criteria defined by the Copenhagen European Council in June 1993 (and confirmed by the Madrid European Council in December 1995) that must be fulfilled by any country wishing to join the European Union. Included are political criteria (stable institutions guaranteeing democracy, the rule of law, human rights and respect for minorities), economic criteria (a functioning market economy) and the incorporation into national law of the acquis communautaire.
Core inflation Measure that reflects the persistent sources of inflationary pressures; it is the total inflation net of the effects of transitory shocks such as adjustments to regulated prices, changes in indirect taxation, adverse weather conditions or significant variations in the international oil price. Related terms: inflation, CPI, regulated prices, CORE1, CORE2.
Council of the European Union (EU Council) An EU institution made up of representatives of the governments of the Member States, normally the ministers responsible for the matters under consideration. The EU Council meeting in the composition of the ministers of economics and finance is often referred to as the "Ecofin Council". For decisions of particular importance, the EU Council meets in the composition of the Heads of State or Government.
Court of Justice of the European Union (Court of Justice) The EU institution that rules on the interpretation and application both of the TFEU and of the legal acts laid down by other EU institutions. Following the Treaty of Lisbon, the Court includes the Court of Justice, the General Court (previously the Court of First Instance) and specialised courts.
Currency swap In general, the currency swap means to buy a currency when making the initial deal and the obligation to sell it at a future moment at some forward pre-settled rate. In some analyses, this category includes interest rate swap transactions that comprise a currency rate risk. These are transactions where the swap between the two contracting parties is made up by the interest rate differential (with at least one of them being variable), computed for two amounts (notional values), expressed in different currencies.
Cyclical component of the budget balance Part of the general government budget balance related to the cyclical developments in the economy. Cyclical adjustment of the budget balance is a standard procedure in macroeconomic analyses, commonly used by most institutions (e.g. National Bank of Romania, European Commission, European Central Bank, International Monetary Fund) to determine the size of the general government balance which would have prevailed if the economy had been at its potential level. Related terms: fiscal impulse, structural component of the budget balance.
Deflation A decline in the general level of prices; opposite to inflation. Related terms: inflation, disinflation.
Development Policy Lending (DPL) Policy-based lending: Provision of untied donor resources directly through the government’s budget, using the government’s own financial management, procurement, auditing, and implementation processes and systems. This lending is based on a set of policy or institutional reforms (termed conditionality when set out ex-ante in a multi-tranche operation, or prior actions when identified ex post in a single tranche operation). The World Bank’s term for policy-based lending is Development Policy Lending (DPL).
Disinflation A decrease in the rate of inflation. Related terms: inflation, deflation.
Domestic absorption The value of goods and services used in an economy for final consumption and investment. Related terms: final consumption, aggregate demand.
Domestic demand See domestic absorption.
EU Member State A country that is a member of the European Union.
EU enlargement The European Union currently has 27 Member States. In addition to the first six Member States of the EEC — Belgium, France, Germany, Italy, Luxembourg and the Netherlands — 21 further countries are now members of the Union. These are: Denmark, Ireland and the United Kingdom (1973); Greece (1981); Spain and Portugal (1986); Austria, Finland and Sweden (1995); the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia (2004); Bulgaria and Romania (2007). Croatia, the Former Yugoslav Republic of North Macedonia, Turkey and Iceland have the status of candidate countries.
Economic and Financial Committee (EFC) A consultative EU body set up at the start of Stage Three of Economic and Monetary Union (EMU). The Member States, the European Commission and the ECB each appoint no more than two members of the Committee. Each Member State selects one member from among the senior officials of its national administration, and the second member from among the senior officials of its national central bank. However, the national central bank members only participate in EFC meetings when issues of their institution's particular expertise or competence are being discussed. Article 134(2) of the TFEU contains a list of the tasks of the Economic and Financial Committee.
Economic and Monetary Union (EMU) The outcome of the process laid down in the Treaty establishing the European Community for harmonisation by EU Member States of economic and monetary policies and for introduction of the euro. Three stages were provided for: Stage One (1 July 1990 to 31 December 1993), removal of barriers to free movement of capital within the EU, better coordination of economic policies and closer cooperation between central banks, Stage Two (1 January 1994 to 31 December 1998), establishment of the European Monetary Institute (EMI) followed by preparations for introduction of the euro, avoidance of excessive deficits and enhanced convergence of policies (to ensure stable prices and sound public finances). Stage Three (from 1 January 1999) began with irrevocable fixing of exchange rates, transfer of monetary competence to the ECB and the introduction of the euro. The TFEU no longer refers to the three stages of EMU, as this progressive terminology is outdated.
Effective EU GDP Measure of the external trading partners demand for Romanian products, computed by using weights based on Romanian exports towards each destination country. Related terms: exogenous aggregate demand factors.
Emerging markets The capital markets of developing countries that have liberalized their financial systems to promote capital flows with nonresidents and are broadly accessible to foreign investors. Originally coined in the 1980s by then World Bank economist Antoine van Agtmael, the term is sometimes loosely used as a replacement for emerging economies, but really signifies a business phenomenon that is not fully described by or constrained to geography or economic strength; such countries are considered to be in a transitional phase between developing and developed status. Examples of emerging markets include China, India, Brazil, Mexico, some countries in Southeast Asia, most countries in Eastern Europe, Russia, and some countries in the Middle East
Euro The name of the European single currency adopted by the European Council at its meeting in Madrid on 15 and 16 December 1995.
Euro area The area encompassing the EU Member States whose currency is the euro and in which a single monetary policy is conducted under the responsibility of the Governing Council of the ECB. It currently comprises Belgium, Germany, Greece, Spain, France, Ireland, Italy, Cyprus, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.
Eurogroup An informal gathering of the ministers of economics and finance of the euro area member countries, at which they discuss issues connected with their shared responsibilities in respect of the single currency. The European Commission and the ECB are invited to take part in the meetings. The Eurogroup usually meets immediately before an Ecofin Council meeting.
Europe 2020 strategy for growth and jobs Europe 2020 is the European Union's new strategy for smart, sustainable and inclusive growth and jobs launched by the European Commission on 3 March 2010 in order to go out of the crisis and prepare EU economy for the next decade.
European Bank for Reconstruction and Development (EBRD) The EBRD is an international financial institution that supports projects in 29 countries from central Europe to central Asia. Investing primarily in private sector clients whose needs cannot be fully met by the market, the Bank promotes entrepreneurship and fosters transition towards open and democratic market economies.
European Central Bank (ECB) The ECB was established on 1 June 1998 in Frankfurt am Main as the body at the centre of the European System of Central Banks (ESCB) and the Eurosystem. Together with the national central banks of the EU Member States whose currency is the euro, the ECB defines and implements the monetary policy for the euro area. Since the entry into force of the Treaty of Lisbon on 1 December 2009, the ECB has been an EU institution.
European Commission The EU institution established in 1967 (for the then three European Communities) that drafts proposals for new EU legislation (which it presents to the European Parliament and the EU Council for adoption), makes sure that EU decisions are properly implemented and supervises the way EU funds are spent. Together with the Court of Justice of the European Union, it ensures that legislation applying to all EU Member States is properly implemented and that the provisions of the TFEU are applied in full.
European Council An EU institution that brings together the Heads of State or Government of the EU Member States and the President of the European Commission to provide the European Union with the necessary impetus for its development and to define the general political guidelines thereof.
European Economic Area (EEA) A free-trade area encompassing EU Member States and Iceland, Liechtenstein and Norway.
European Monetary System (EMS) An exchange rate regime established in 1979 to foster closer monetary policy cooperation between the central banks of the Member States of the European Economic Community (EEC) so as to lead to a zone of monetary stability in Europe. The main components of the EMS were the ECU (a basket currency made up of the sum of fixed amounts of currencies of EEC Member States), the exchange rate and intervention mechanism (ERM) and various credit mechanisms. It was replaced by ERM II (exchange rate mechanism II) at the start of Stage Three of Economic and Monetary Union (EMU) on 1 January 1999.
European Parliament An EU institution that currently consists of 736 directly elected representatives of the citizens of the Member States. It plays a role in the EU's legislative process, although with differing prerogatives that depends on the procedures through which the respective EU legislation is to be enacted. Where monetary policy and the ESCB are concerned, the powers of the European Parliament are mainly consultative in character, although the TFEU provides for certain procedures with respect to the democratic accountability of the ECB vis-à-vis the Parliament (presentation of the ECB's Annual Report, including a general debate on monetary policy, and hearings before the competent parliamentary committees).
European System of Central Banks (ESCB) The central banking system of the European Union. It comprises the ECB and the national central banks of all EU Member States (but the national central banks of EU Member States whose currency is not the euro are not involved in the conduct of the Eurosystem's monetary policy because they retain responsibility for monetary policy under national law).
European Union (EU) The European Union was established by the Treaty on European Union (Maastricht, 1992). The Union is a form of legal organisation consisting of three pillars: - the first corresponding to the European Community; - the second comprising the common foreign and security policy (CFSP) and the European security and defense policy (ESDP); - the third consisting of police and judicial cooperation in criminal matters. The Union is founded on values: respect for human dignity, liberty, democracy, equality, the rule of law and human rights.
Eurosystem The central banking system of the euro area. It comprises the ECB and the national central banks of those EU Member States whose currency is the euro.
Excessive deficit procedure The provision set out in Article 126 TFEU and specified in Protocol No 12 on the excessive deficit procedure requires EU Member States to maintain budgetary discipline, defines the criteria for a budgetary position to be considered an excessive deficit and regulates steps to be taken following the observation that the requirements for the budgetary balance or government debt have not been fulfilled.
Exchange Rate Mechanism (ERM II) Bilateral arrangement regarding the exchange rate in which a national currency has a central parity against the euro and a standard variation band of +/-15 percentage points around this parity. Participation in this mechanism for at least two years without registering severe tensions represents one of the nominal convergence criteria that has to be fulfilled prior to entering the euro zone.
Exchange rate mechanism II (ERM II) The exchange rate arrangement established on 1 January 1999 that provides a framework for exchange rate policy cooperation between the Eurosystem and EU Member States whose currency is not the euro. Although membership in ERM II is voluntary, Member States with a derogation are expected to join. This involves establishing both a central rate for their respective currency's exchange rate against the euro and a band for its fluctuation around that central rate. The standard fluctuation band is ±15%, but a narrower band may be agreed on request.
Executive Board of the ECB One of the decision-making bodies of the ECB. It comprises the President and the Vice-President of the ECB and four other members, all of whom are appointed by common accord by the Heads of State or Government of the EU Member States whose currency is the euro.
Exogenous aggregate demand factors Aggregate demand determinants on which the monetary policy, via its specific instruments, cannot exert a direct or significant indirect influence. Examples: the fiscal policy, the external demand for domestic products etc.
Exogenous variable An economic variable whose values are not determined by the other variables of a given economic model.
Expansionary monetary policy Monetary policy actions that result in the acceleration of the growth of aggregate demand and possibly a spike in inflationary pressures.
Export/import unit value Ratio between the value of exports and imports and their respective quantities; although it is used as an approximation of export/import prices, the variation over time of the unit value does not solely reflect price changes, but also the impact of changes in the structure of exports/ imports.
Extended Credit Facility (ECF) Extended Credit Facility provides financial assistance to countries with protracted balance of payments problems. The ECF was created as part of a broader reform to make the Fund’s financial support more flexible and better tailored to the diverse needs of low income countries, including in times of crisis. The ECF succeeds the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for providing medium-term support low income countries, with higher levels of access, more concessional financing terms, more flexible program design features, as well as streamlined and more focused conditionality.
Final consumption Part of domestic demand/domestic absorption that consists of goods and services consumed by individual households and the government. Related terms: domestic demand.
Financial Sector Assessment Program (FSAP) The FSAP, a joint IMF and World Bank effort introduced in May 1999, aims to increase the effectiveness of efforts to promote the soundness of financial systems in member countries. Supported by experts from a range of national agencies and standard-setting bodies, work under the program seeks to identify the strengths and vulnerabilities of a country's financial system; to determine how key sources of risk are being managed; to ascertain the sector's developmental and technical assistance needs; and to help prioritize policy responses.
Financial System Stability Assessment (FSSA) The FSSA is a report based on the work of the joint IMF-World Bank Financial Sector Assessment Program missions in which IMF staff address issues of relevance to IMF surveillance, including risks to macroeconomic stability stemming from the financial sector and the capacity of the sector to absorb macroeconomic shocks.
First round effects of a supply side shock Represents the direct effect of the supply side shock on consumption prices and implicitly on the inflation rate measured by the consumer price index (CPI). As the annual inflation rate reflects the price variation in the last 12 months, a supply side shock has persistent effects on this indicator, even if the initial shock has a partial impact on only one month. After 12 months since the shock, there will be a favourable/unfavourable base effect on annual inflation, depending on the type of the initial shock (inflationary/deflationary). Related terms: aggregate demand shocks, second round effect of a supply side shock, base effect).
Fiscal impulse An indicator that quantifies the discretionary-type impact of the fiscal policy on aggregate demand. It is computed as a variation of the previous period structural fiscal balance with respect to the current period; a positive fiscal impulse corresponds to an expansionary fiscal policy, while a negative one corresponds to a restrictive fiscal policy. If the positive fiscal impulse (fiscal expansion) is simultaneous to a positive output gap then the fiscal policy is assessed as pro-cyclical – meaning that the fiscal policy does not achieve its role of stabilizing the economic cycle; on the contrary, it contributes to the amplification of the cyclical fluctuations and inflationary pressures in the economy. If the negative fiscal impulse (fiscal contraction) is simultaneous to a negative output gap then the fiscal policy is also assessed as pro-cyclical – meaning that it delays the recovery of the economy and keeps economic growth under the potential level for a prolonged period. Related terms: exogenous aggregate demand factors, cyclical component of the budget balance, structural component of the budget balance.
G20 The Group of Twenty (G-20) Finance Ministers and Central Bank Governors was established in 1999 to bring together systemically important industrialized and developing economies to discuss key issues in the global economy. The G20 members are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Republic of Korea, Turkey, United Kingdom, United States of America. The European Union, who is represented by the rotating Council presidency and the European Central Bank, is the 20th member of the G20.
G8 The G8 is a forum for discussions, created by France in 1975, for governments of six countries in the world that represent the world’s major industrialized democracies: France, Germany, Italy, Japan, the United Kingdom, and the United States. In 1976, Canada joined the group (thus creating the G7). In becoming the G8, the group added Russia in 1997. In addition, the European Union is represented within the G8, but cannot host or chair.
GDP deflator Price index which reflects the changes in the prices of all final goods and services produced in an economy during a certain period of time. It is determined as the ratio between the current period nominal GDP and the current period GDP in constant prices (expressed in percent). Related terms: gross domestic product (GDP).
GDP volume index Represents the GDP variation under the assumption that no changes in prices took place since the previous period, considered as the base period. It is computed as a ratio between current GDP in constant prices and nominal GDP from the base period. Related terms: gross domestic product (GDP), real GDP growth rate.
General Council of the ECB One of the decision-making bodies of the ECB. It comprises the President and the Vice-President of the ECB and the governors of the national central banks of all EU Member States.
General Data Dissemination System (GDDS) The Fund's work on data dissemination standards began in October 1995, when the Interim Committee (now the International Monetary and Financial Committee or IMFC) endorsed the establishment by the Fund of standards to guide members in the dissemination to the public of their economic and financial data. Those standards were to consist of two tiers: the General Data Dissemination System (which would apply to all Fund members), and the Special Data Dissemination Standard.
Globalization Globalization describes a process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation, and trade. The term is sometimes used to refer specifically to economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology.
Governing Council of the ECB The supreme decision-making body of the ECB. It comprises the President and the Vice-President of the ECB plus the other members of the Executive Board and the governors of the national central banks of those EU Member States whose currency is the euro.
Gross domestic product (GDP) The total value of final goods and services produced by economic entities within a country during a given time period (usually a quarter or a year). It can be denominated in current period prices (nominal GDP) or the prices of a previous period, called the base period (GDP in constant prices, real GDP). Related terms: GDP deflator, GDP volume index, real GDP growth rate, gross national product.
Gross national product (GNP) Final output value produced by national operators in the country and abroad. GNP is GDP adjusted by the balance of factor income vis-à-vis the rest of the world (wages, profits, rents, interest, dividends). For example, if in the reference period, the incomes received from abroad are higher than those paid abroad, GNP is higher than GDP. Related terms: GDP.
Harmonised index of consumer prices; HICP Price index with a computation methodology that has been harmonized between the European Union countries. The inflation rate in the euro zone and the inflation objective of the European Central Bank are based on this index.
Import prices Final consumer prices, in national currency, of goods and services whose production (purchase) value includes a major cost in the form of imported goods.
Inflation Increase in the general level of prices, usually measured by means of CPI. Related terms: CPI, core inflation, disinflation, deflation.
Inflation target Reference guide for the monetary policy (expressed as a number) for aggregated growth of the price level targeted over a certain period.
Inflation targeting Monetary policy strategy characterized by a public adoption of a quantitative inflation target for one or more time horizons and explicitly defining the price stability as the primary objective of the monetary policy. An important feature of this strategy is the transparency of the public communication regarding the monetary policy objectives and actions, as well as the central bank view on the future development of prices. The transparent communication facilitates the public assessment of the monetary policy performance, thus contributing to a better central bank responsibility. Related terms: monetary policy strategy.
Informal/hidden/underground economy A legal economic activity that is hidden to the authorities in order to avoid: (i) paying taxes (income taxes, VAT, import duties); (ii) paying social contributions; (iii) conforming to standards regarding minimum wages, maximum working hours, labour health and safety rules etc.; (iv) complying to certain administrative procedures, such as filling in statistical questionnaires and other administrative forms.
International Bank for Reconstruction and Development (IBRD) The International Bank for Reconstruction and Development (IBRD) aims to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services. Established in 1944 as the original institution of the World Bank Group, IBRD is structured like a cooperative that is owned and operated for the benefit of its 186 member countries.
International Centre for Settlement of Investment Disputes (ICSID) ICSID is an autonomous international institution established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States with over one hundred and forty member States. The Convention sets forth ICSID's mandate, organization and core functions. The primary purpose of ICSID is to provide facilities for conciliation and arbitration of international investment disputes.
International Development Association (IDA) The International Development Association (IDA) is the part of the World Bank that helps the world’s poorest countries. Established in 1960, IDA aims to reduce poverty by providing interest-free credits and grants for programs that boost economic growth, reduce inequalities and improve people’s living conditions.
International Financial Corporation (IFC) IFC is a member of the World Bank Group. IFC fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing capital in the international financial markets, and providing advisory services to businesses and governments.
International Monetary Fund (IMF) IMF is an international organization, based in Washington, D.C., with a membership of 186 countries (2010). It was established in 1945 to promote international monetary cooperation and exchange rate stability, to foster economic growth and high levels of employment and to help member countries to correct balance of payments imbalances.
International Monetary Systems The International Monetary Systems are sets of internationally agreed rules, conventions and supporting institutions that facilitate international trade, cross border investment and generally the reallocation of capital between nation states. They provide means of payment acceptable between buyers and sellers of different nationality, including deferred payment. To operate successfully, they need to inspire confidence, to provide sufficient liquidity for fluctuating levels of trade and to provide means by which global imbalances can be corrected. The systems can grow organically as the collective result of numerous individual agreements between international economic actors spread over several decades. Alternatively, they can arise from a single architectural vision as happened at Bretton Woods in 1944.
Labour market pressures The employers’ difficulty of finding appropriate staff in the specific structure and with the desired qualifications, that can result in an increase in the negotiated wage.
Labour productivity Measure of the labour efficiency in a certain period in an economic activity. It can be computed as the ratio of GDP in constant prices and employment or, in the case of industry, as the ratio between industrial production and number of employees. Related terms: unit labour cost.
Letter of intent (LOI) A document in which a member country of the IMF formally requests an arrangement to use the Fund's financial resources and describes its commitments to strengthen its economic and financial policies. The letter of intent is usually accompanied by a Technical Memorandum of Understanding.
Market prices Prices that are set freely (without government intervention), depending on the interaction between supply and demand in the market. Related terms: CORE1, administered prices.
Member State with a derogation A Member State that is, as set out in Article 140 TFEU, preparing to adopt the euro. There are currently 9 Member States with this status: rights and obligations relating to the introduction of the euro as a single currency do not apply to them. The cases of Denmark and the United Kingdom are different in that these two Member States have been granted an exemption from participating in the third stage of Economic and Monetary Union.
Memorandum of understanding (MOU) A memorandum of understanding is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action. Central banks and financial international institutions could be subject of a MOU.
Monetary policy instrument A specific tool that the central bank uses in order to achieve its fundamental objective.
Monetary policy interest rate The interest rate used for the main open market operations of the central bank. Currently, these are one-week repo operations, conducted via fixed rate tender.
Monetary policy strategy The set of criteria and procedures on which the adoption, implementation and communication of the central bank decisions are based and that seek the achievement of the fundamental objective of the monetary policy. The main types of monetary policy strategies are: (i) exchange rate targeting; (ii) monetary aggregates targeting; (iii) inflation targeting. Within the exchange rate targeting strategy, the nominal anchor of the monetary policy is the currency rate against an important commercial partner that has a low inflation rate. Depending on the flexibility of the exchange rate and the robustness of the commitment of the monetary authority to changes in the currency, the regime has a great variety of forms (fixed exchange rate, floating exchange rate according to a pre-settled band, exchange rate with horizontal or adjustable band etc.). An extreme case of exchange rate regimes is the currency board where the central bank is due to change the national currency against a fixed exchange rate set by law whenever the public asks for; the currency board imposes that the monetary base is covered by more than 100 per cent by foreign exchange reserves, with the highest constrains on discretionary operations of the monetary authority. In the context of the monetary aggregates, the central bank uses explicitly a monetary aggregate as a nominal anchor (intermediate objective) in order to achieve the inflation objective; this strategy is based on the existence of a stable relation between the cash stock in the economy and the nominal GDP. Related terms: inflation targeting.
Money demand The desire of population and companies to hold assets that can be easily exchanged for goods and services. High liquidity is the main aspect that differentiates money from other types of assets. In general, the demand for money depends on the nominal GDP and the interest rate. The main components of the money demand are: (1) the money demand for transactions purposes - derived from the public intention to acquire the necessary goods and services and (2) the demand for money as a financial asset - mainly reflecting public preference for savings under this form.
Multilateral Investment Guarantee Agency (MIGA) As a member of the World Bank Group, MIGA's mission is to promote foreign direct investment into developing countries to help support economic growth, reduce poverty and improve people’s lives by providing political risk insurance (guarantees) to the private sector.
National Central Bank (NCB) A central bank of an EU Member State.
Natural interest rate The natural interest rate is the unobserved short term real interest rate that is consistent with economic activity being at it potential level and therefore with lack of inflationary pressures coming from the aggregate demand. The natural rate is important as it represents the benchmark in assessing the stance (expansionary or restrictive) of the monetary policy (as is reflected by the central bank’s decision regarding the reference interest rate). Among the factors that influence the natural rate there are the government spending, the consumers’ preferences (e.g. present vs. future consumption), the technological progress and the elasticity of labour supply. Related terms: potential GDP.
Net external demand, net exports The difference between a country’s total value of exports and total value of imports.
Nominal appreciation of a currency An increase in the value of a currency against another currency or a basket of currencies as a result of the existing supply and demand on the foreign exchange market under a floating exchange rate regime.
Nominal depreciation of a currency A decrease in the value of a currency against another currency or a basket of currencies as a result of the existing supply and demand on the foreign exchange market under a floating exchange rate regime.
Nontradables Goods and services produced and consumed domestically that are not subject to international trade. Related terms: Balassa-Samuelson effect, tradable goods.
Organization for Economic Co-operation and Development (OECD) OECD was founded in Paris in 1961 and since then, its mission has been to help its member countries (30 in 2010) to achieve sustainable economic growth and employment and to raise the standard of living in member countries while maintaining financial stability – all this in order to contribute to the development of the world economy.
Output gap Difference (in percentage points) between actual and potential real GDP. It is used as a synthetic measure of the inflationary pressures in the economy. A positive output gap (when GDP is above the potential level, i.e. excess demand) reveals the existence of inflationary pressures. Conversely, a negative output gap shows disinflationary pressures. In the long run, the accumulated pressures materialize into actual prices’ movements, and the output gap tends to zero, bringing GDP to its potential level. Related terms: potential GDP, overheating.
Overheating Overheating of an economy occurs when short-term aggregate demand exceeds long-term aggregate supply. In other words, in the case of the economy as a whole, the output gap is positive, with the ensuing excess demand exerting, ceteris paribus, inflationary pressures. At the same time, overheating implies imbalances across most of the economic sectors. Related terms: Output gap.
Personal disposable income The income that can be used by the population for consumption or spending purposes during a certain period of time (usually, a quarter or a year). It includes, besides income from labour and property (rents, interest, dividends), income from current transfers (pensions, aids, allowances, cash transfers) and represents the population disposable income after deducting taxes, social contributions and some current transfers.
Potential GDP The level of real GDP that can be produced in the economy without generating inflationary pressures. Over the long term, potential GDP is determined by fundamental factors: the organization of the economy, the productive capacity of the economy determined by technology and demographic factors that affect labour etc. Due to changing fundamentals of the economy, the potential GDP varies each period and the time series corresponding to its values is also called the GDP trend. Related terms: output gap.
Poverty Reduction and Growth Facility (PRGF) Established as the Enhanced Structural Adjustment Facility (ESAF) in 1987, enlarged and extended in 1994, and further strengthened in 1999 to make poverty reduction a key and more explicit element. The purpose of the facility is to support programs to strengthen substantially and in a sustainable manner balance of payments positions, and to foster durable growth, leading to higher living standards and a reduction in poverty. Eighty low-income countries are currently PRGF-eligible.
Quota (IMF) Each member of the IMF is assigned a quota, denominated in SDRs, that is based broadly on the country's economic position relative to other members. The size of a country’s quota takes into accounts its GDP, current account transactions, and official reserves. Quotas determine members' capital subscriptions to the Fund, voting power, and the amount of financial assistance available to them from the Fund. Quotas are reviewed regularly, normally every five years.
Real GDP growth rate GDP volume index minus 100. Related terms: gross domestic product (GDP), GDP volume index.
Real exchange rate Nominal exchange rate of a currency against another currency, adjusted for the effects of inflation differential between the respective countries.
Real interest rate Nominal interest rate corrected for price changes during the period of time considered. It thus expresses a real yield, i.e. a gain measured in terms of goods and services. In the ex-post form the real interest rate refers to a past period, being determined by inflation recorded during that period. In the ex-ante form the real interest rate refers to a future time and is based on inflationary expectations formed now for the analysed period. Since the real interest rate refers to future, economic decisions related to placing funds and investing depend on the ex-ante real interest rate and not the ex-post one.
Reports on the Observance of Standards and Codes (ROSC) A key component of the FSAP, ROSCs summarize the extent to which countries observe certain internationally recognized standards and codes in areas such as accounting, auditing, anti-money laundering and countering the financing of terrorism, banking supervision, corporate governance, data dissemination, fiscal transparency, insolvency and creditor rights, insurance supervision, monetary and financial policy transparency, payments systems, and securities regulation. Reports summarizing countries' observance of these standards are prepared and published at the request of the member country.
Risk premium Additional return required by investors in the money or capital market due to a higher degree of risk associated with an asset or portfolio of assets. For an investment in financial assets denominated in a foreign currency, a special risk is related to unpredictable fluctuations in the exchange rate, also called currency risk. Risk premium is often influenced by global assessment of the sovereign risk conducted by international rating agencies, the inflation rate (compared to foreign trade partners), the level and dynamics of the current account deficit and foreign debt etc.
Seasonality The pattern of fluctuations in the evolution of economic variables that occur systematically during certain periods of the year.
Second round effects of a supply side shock Measures the indirect, propagated impact of a supply shock on CPI inflation. The effects add up to those of the first round, being determined by changing inflation expectations towards higher/lower levels according to the type of the shock (inflationary/deflationary). The second round effects may persist even beyond the maximum horizon of action of the first round effects of the same shock (12 months). Related terms: supply side shocks, first round effects of a supply side shock).
Special Data Dissemination Standard (SDDS) The SDDS was established by the International Monetary Fund to guide members that have, or that might seek, access to international capital markets in the provision of their economic and financial data to the public.
Special Drawing Rights (SDR) International reserve asset created by the IMF in 1969 to supplement other reserve assets that are periodically allocated to IMF members in proportion to their respective quotas. The SDR is based on a basket of international currencies comprising the U.S. dollar, Japanese yen, euro and pound sterling.
Stability and Growth Pact The Stability and Growth Pact consists of two EU Council Regulations, on "the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies" and on "speeding up and clarifying the implementation of the excessive deficit procedure", and of a European Council Resolution on the Stability and Growth Pact adopted at the Amsterdam summit on 17 June 1997. More specifically, budgetary positions close to balance or in surplus are required as the medium-term objective for Member States since this would allow them to deal with normal cyclical fluctuations while keeping their government deficit below the reference value of 3% of GDP. In accordance with the Stability and Growth Pact, countries participating in EMU will submit annual stability programmes, while non-participating countries will provide annual convergence programmes.
Stand-by arrangement (SBA) A decision of the IMF by which a member is assured that it will be able to make purchases (drawings) from the General Resources Account (GRA) up to a specified amount and during a specified period of time, usually one to two years, provided that the member observes the terms set out in the supporting arrangement.
Structural component of the budget balance It represents the general government balance component that summarizes the net effect of discretionary measures adopted by the fiscal authority. The annual change in the structural component of the budget deficit represents the fiscal impulse and determines how the discretionary fiscal policy measures interact with macroeconomic variables and, implicitly, with the aggregate demand and inflation. This indicator is closely monitored in the European Fiscal Compact, which requires member states' national budgets to be balanced or in surplus by imposing limits to the size of their structural balance. Related terms: fiscal impulse, cyclical component of the budget balance.
Target band A band around the inflation target within which the deviations from the target (due to the imperfect control of the monetary policy on the inflation rate) are considered acceptable.
Tradables Goods and services subject to international trade. Related terms: Balassa-Samuelson effect, nontradable goods.
Tranche A slice or segment, usually used as either "reserve tranche," the name given to a country's creditor position in the Fund, or as "credit tranche," a designation of the extent of a country's purchases (borrowing) from the Fund.
Treaty of Lisbon The Treaty amending the Union’s two core treaties: the Treaty on European Union and the Treaty establishing the European Community. The Treaty of Lisbon was signed in Lisbon on 13 December 2007 and entered into force on 1 December 2009.
Treaty on the Functioning of the European Union (TFEU) Following entry into force of the Treaty of Lisbon on 1 December 2009, the Treaty establishing the European Community was renamed the Treaty on the Functioning of the European Union (TFEU). This Treaty - referred to as the Treaty of Rome (signed in Rome on 25 March 1957) - entered into force on 1 January 1958 to establish the European Economic Community (EEC). The Treaty establishing the European Community was subsequently amended by the Treaty on European Union (often referred to as the Maastricht Treaty) signed on 7 February 1992 and entering into force on 1 November 1993, thereby establishing the EU. Thereafter, both the Treaty establishing the European Community and the Treaty on European Union were amended by the Treaty of Amsterdam, signed in Amsterdam on 2 October 1997 and entering into force on 1 May 1999, the Treaty of Nice, signed on 26 February 2001 and entering into force on 1 February 2003, and then by the Treaty of Lisbon.
Unit labour cost Indicator of the labour market pressures, as well as of the cost competitiveness of the economy. It represents the cost of labour per unit of output and it is determined as the ratio of total wages (number of employees multiplied by average gross wage) and the volume of production; the formula is equivalent to the ratio of the average gross wage and the labour productivity. Related terms: labour productivity.
Volatile prices See CORE2.
Wealth effect, balance sheet effect The effect on consumption and investment decisions of households and firms given by the change in their net wealth. This change can be generated by variation in assets’ price (stocks, housing etc.) or debt value (ex: mortgages, consumption loans, investment loans, including their corresponding payments). Therefore, an increase in the household’s net wealth or an improvement in the firm’s balance sheet has a positive effect on consumption and investment, and, implicitly, on aggregate demand. Related terms: output gap.
World Bank Group The World Bank Group includes two development institutions owned by 186 member countries: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Their work is complemented by that of the International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID).
World Trade Organization (WTO) WTO is an organization that intends to supervise and liberalize international trade. The organization officially commenced on 1995 and deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments.
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