Monetary transmission mechanism in Poland.The strenght and delays
No 26, NBP Working Papers from Narodowy Bank Polski, Economic Research Department
Monetary transmission mechanism is in the core of central banking. Its understanding however seems to be especially important within direct inflation targeting strategy. In particular, it facilitates the adequate setting of headline interest rates, consistent with declared objectives of the monetary policy. This paper looks into the strength of the monetary transmission mechanism in Poland as well as the delays in this process. It does so by using a new version of the small structural model of monetary transmission mechanism in Poland. There are three major differences between the new version of the model and the previous one, discussed in detail in Lyziak (2001). Firstly, in the version of the model presented in this paper, the interest rate channel and the banklending channel are modelled jointly. Secondly, due to the use of more adequate measures of the real exchange rate and a change of the sample period, both direct and indirect (demand) effects of the exchange rate channel are captured. Thirdly, in the new version of the model price behaviour of selected items of the consumer basket - i.e. foodstuffs, oil and remaining items - is modelled separately. Based on the model simulations, the paper confirms that the effectiveness of the monetary transmission mechanism in Poland has increased. It is reflected in a relatively stronger impact of interest rate impulses on inflation relative to the conclusions from the previous version of the model.
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