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What Drives the POLONIA Spread in Poland?

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  • Yinqiu Lu
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    Abstract

    Since the start of the 2008 - 09 financial crisis, the Polish Overnight Index Average (POLONIA) has persistently been below the policy rate, suggesting a limited influence of the NBP’s open market operations on the short-term interbank rate. In this regard, this paper analyzes the behavior of the POLONIA spread and explore several potential factors that could influence the spread. An empirical analysis confirms that the negative POLONIA spread is related to a few factors, which include the existence of the structural liquidity in the banking system; bank’s unwillingness to lock up liquidity in the NBP bills; the frontloading of banks’ fulfillment of the reserve requirements; and external market sentiment. The analysis also shows the effectiveness of the NBP’s responses to the financial crisis and structural liquidity surplus.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/215.

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    Length: 19
    Date of creation: 01 Aug 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/215

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    Related research

    Keywords: Banking systems; Central bank policy; Interest rates; Liquidity; interbank market; banking; monetary policy; central bank; banking system; national bank; monetary fund; reserve requirement; reserve requirements; monetary policy transmission mechanism; inflation; liquidity management; money market; open market operations; bank assets; liability management; monetary policy framework; minimum reserve requirements; interbank money market; government securities market; treasury securities; monetary policies; government securities; excess liquidity; bank policy; foreign exchange;

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    1. Leonardo Bartolini & Alessandro Prati, 2003. "Cross-country differences in monetary policy execution and money market rates' volatility," Staff Reports 175, Federal Reserve Bank of New York.
    2. International Monetary Fund, 2009. "What Drives China's Interbank Market?," IMF Working Papers 09/189, International Monetary Fund.
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