Unemployment level and the non-linear effects of monetary policy in Poland

Paweł Kopiec () and Małgorzata Walerych

No 377, NBP Working Papers from Narodowy Bank Polski

Abstract: We investigate whether the transmission of monetary shocks in Poland depends on the level of economic slack. To this end, we estimate smooth transition panel local projections using Poland’s regional data and analyze how monetary shocks affect unemployment and prices in regimes of high and low unemployment. Our key finding aligns with economic intuition: the response of unemployment to monetary policy shocks is stronger when economic slack is high, compared to when it is low. Conversely, the adjustment of prices to monetary innovations is more pronounced when idle resources in the economy are scarce, compared to when they are abundant. Our main conclusion is further supported by evidence showing that the difference in the strength of the employment response to monetary shocks, depending on the unemployment level, is more pronounced in sectors producing non-tradable goods than in those manufacturing tradable goods. Moreover, comparing our model with its linear counterpart confirms that monetary transmission in Poland indeed exhibits state-dependence, while the analysis of monetary shock distributions under low and high unemployment shows that our results are not driven by the presence of a regime-dependent pattern in monetary disturbances.

Keywords: monetary policy transmission; unemployment; local projections; state dependence (search for similar items in EconPapers)
JEL-codes: E24 E52 E58 (search for similar items in EconPapers)
Pages: 38
Date: 2025
New Economics Papers: this item is included in nep-eur and nep-mon
Note: This paper represents the opinions of the authors. It is not meant to represent the position of Narodowy Bank Polski. We thank Piotr Denderski, Michał Gradzewicz, Mariusz Kapuściński, Łukasz Postek, Grzegorz Wesołowski, anonymous referee and seminar participants at NBP and INE PAN for helpful discussions and comments. We would like to thank Michał Chrząścik for research assistance.
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:377

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