The Annual Scientific Conference of the Romanian Academic Economists from Abroad (ERMAS) has become much more than an annual academic space for debates. It has established itself as a forum for rigorous dialogue on issues that are central to the advancement of sound economic and financial policies.

At the same time, this conference has succeeded in creating a genuine scientific community. Ideas travel more easily than ever, but meaningful collaboration still depends upon communities built on mutual respect, intellectual curiosity, and academic excellence.

I am keen, thus, to notice the growing international reputation of this conference and the increasingly strong links between Romanian economists and the global academic community.

For us at NBR, economic research is an integral part of our institutional mission. Policymaking has always benefited from sound analysis, and we continue to encourage our economists to remain actively engaged in academic research and professional dialogue.

The National Bank of Romania is proud to continue its enduring collaboration with the ERMAS Association and Babeș-Bolyai University. This partnership reflects our conviction that economic policymaking is stronger when institutions remain closely connected to academic research and translate insights into practice.

Today’s world is marked by technological innovation advancing at extraordinary speed. Artificial intelligence has already begun to reshape production processes, labor markets, and financial intermediation, requiring large volumes of investments.

At the same time, geopolitical developments are redefining trade patterns and investment decisions, prompting economists to adapt their analytical frameworks and econometric models to a broader set of risks and variables.

For economists, these developments raise an important question. How can the distinction be made between temporary disturbances and genuine structural change? The answer is rarely straightforward.

The multiple and diverse shocks, experienced over recent years, remind us that uncertainty is not an exception to policymaking, but rather an inherent feature.

The current macroeconomic environment is characterized by elevated uncertainty, stemming from both domestic and external sources. Such conditions pose significant challenges for central banks in the design and implementation of monetary policy. This naturally raises the question of whether a delayed monetary policy response to inflationary pressures can be theoretically justified. The answer is affirmative. A recent study published in August 2025, Beyond the Taylor Rule, by Emi Nakamura, Jón Steinsson (University of California, Berkeley), and Venance Riblier argues that central banks with well-established anti-inflation credibility can navigate inflationary episodes without necessarily responding immediately through policy rate adjustments. Their findings are consistent with earlier work by Dupraz and Marx from Banque de France, who show that, in the presence of cost-push shocks, postponing monetary tightening may, under certain circumstances, constitute the optimal policy response.

Building upon the concept of policy dominance introduced by Sargent and Wallace in the paper Some Unpleasant Monetarist Arithmetic, Ricardo Reis, whose contributions I regard as particularly influential, extends this framework in his 2022 paper What Can Keep Euro Area Inflation High?. He argues that central banks confronting persistent above-target inflation often operate under multiple forms of policy dominance, identifying no fewer than five distinct constraints that may limit the effectiveness of monetary policy. Among these, the one I find especially relevant, particularly in the context of the National Bank of Romania, is recession dominance. According to Reis, this situation arises when concerns that higher interest rates could trigger an excessive slowdown in economic activity discourage central banks from tightening monetary policy as aggressively as inflation would otherwise require. Consequently, policy priorities gradually shift from restoring price stability toward limiting the risk of a severe economic contraction.

In their 2007 paper, Olivier Blanchard and Jordi Galí introduced the concept of divine coincidence, showing that, within the standard New Keynesian framework with nominal price rigidities, the monetary policy actions required to stabilize inflation following demand or productivity shocks also eliminate the output gap—that is, the difference between actual and potential output. Under these circumstances, price stability and real economic stabilization become mutually consistent objectives, allowing a single policy instrument to achieve both simultaneously.

This result, however, does not hold universally. In the presence of cost-push disturbances, stabilizing inflation often requires a tighter monetary stance that comes at the expense of weaker real economic activity. Central banks therefore face an unavoidable policy trade-off between restoring price stability and limiting the adverse effects on output. Isabel Schnabel (2022), in her Jackson Hole speech, emphasized precisely this dilemma in the context of the recent inflationary episode. More recently, Karadi, Nakov, Nuño, Pasten, and Thaler (2026) extended the Blanchard–Galí framework by examining divine coincidence in an environment where firms adjust prices nonlinearly through state-dependent menu-cost pricing. At the same time, Del Negro, Diagne, Dogra, Gundam, Lee, and Pacula (2025), in Tradeoffs for the Poor, Divine Coincidence for the Rich, demonstrate that income inequality itself influences the conditions under which divine coincidence is likely to emerge.

The recent global inflationary episode provides a particularly relevant illustration of these theoretical insights. Inflation has been driven predominantly by cost-push shocks, especially those originating in energy markets, leading many central banks to avoid an overly aggressive monetary tightening that could have imposed substantial costs on real economic activity. Along similar lines, Ricardo Reis (2023) argues that, in the current euro area environment, the pursuit of price stability is constrained not only by supply-side inflationary pressures but also by considerations related to financial stability and fiscal sustainability.

Although Blanchard and Galí originally introduced the concept of divine coincidence to highlight the normative limitations of the benchmark New Keynesian model and the conditional nature of its policy prescriptions, the framework has since become an important reference point in the monetary economics literature. It has been applied to a broad range of issues, including the relationship between policy instruments and policy objectives, as well as the interactions between monetary, fiscal, and financial policy within broader macroeconomic systems.

This discussion naturally recalls the celebrated principle formulated by Jan Tinbergen, one of the founders of econometrics and the first recipient of the Nobel Memorial Prize in Economic Sciences, who argued that the number of independent policy instruments should equal the number of policy objectives. From this perspective, the divine coincidence result represents a remarkable special case: under a well-defined set of assumptions, a single policy instrument—the short-term interest rate—is capable of simultaneously achieving two distinct macroeconomic objectives, namely inflation stabilization and the elimination of the output gap.

Rigorous empirical analyses combined with questions of direct relevance for society are a reminder that good economic policy begins long before decisions are taken.

On this note, the challenges that Europe and the global economy will face over the coming years are unlikely to become simpler. Still, responding to these challenges will all require sound institutions and coherent public policies anchored to evidence and data-based analyses. This is why the National Bank of Romania supports initiatives that encourage research, dialogue, and cooperation between academia and public institutions. We therefore remain committed to fostering strong academic partnerships, constantly reaffirming that rigorous research and the exchange of ideas are essential for policymaking. By investing in knowledge and research excellence, the National Bank of Romania aims to contribute to a more resilient economy and better public policy outcomes.