Is Poland at risk of the zero lower bound?

Michal Brzoza-Brzezina, Marcin Kolasa and Mateusz Szetela ()
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Mateusz Szetela: Warsaw School of Economics

Bank i Kredyt, 2016, vol. 47, issue 3, 195-226

Abstract: In early 2015, the policy (open market operations) rate of Narodowy Bank Polski was reduced to an all--time low of 1.5%. At the same time, prices of consumer goods and services dropped by 1.5% in year-on-year terms. This raised concerns that Poland might become the next country to hit the zero lower bound (ZLB) constraint on nominal interest rates. The purpose of this paper is to examine the scale of this risk and its possible consequences. According to our results, the odds of the Polish economy hitting the ZLB remain low, despite having risen considerably in 2014−2015. At the same time, the consequences of such a scenario would be substantial as the ZLB would amplify the economy’s responses to adverse demand shocks and make their impact more persistent. The current level of the inflation target (2.5%) protects the Polish economy against the zero lower bound to a signifficant degree. However, its potential reduction would significantly increase the likelihood that this threat materializes.

Keywords: zero lower bound; Polish monetary policy; small open economy (search for similar items in EconPapers)
JEL-codes: E43 E47 E52 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Working Paper: Is Poland at risk of the zero lower bound? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpbik:v:47:y:2016:i:3:p:195-226

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