ABSTRACT
Most of the mathematical models used for approaching problems in the field of economics should be considered and analyzed under the assumption of dynamic systems. In systems theory the concept of dynamic system relates input functions to output functions via the concept of state. A basic problem for the correctness of the model is represented by the identification of different characteristics, process that requires the availability of an observation-based realization or filter systems with specified finiteness properties. The proposed model aims at simulating the transmission mechanism of monetary policy in Romania in the framework of monetary targeting. The study presents a double feed-back model for controlling price stability via appointing monetary basis as operational objective and broad money as intermediary objective for monetary policy. The model allows for quantifying the stability of the transmission mechanism of monetary policy within the monetary targeting regime in Romania between 1993 and 2000.
