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What Drives the POLONIA Spread in Poland?

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  • Miss Yinqiu Lu

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.

Suggested Citation

  • Miss Yinqiu Lu, 2012. "What Drives the POLONIA Spread in Poland?," IMF Working Papers 2012/215, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2012/215
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    References listed on IDEAS

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    1. International Monetary Fund, 2012. "Republic of Poland: Selected Issues," IMF Staff Country Reports 2012/163, International Monetary Fund.
    2. Bartolini, Leonardo & Prati, Alessandro, 2006. "Cross-country differences in monetary policy execution and money market rates' volatility," European Economic Review, Elsevier, vol. 50(2), pages 349-376, February.
    3. Moschitz, Julius, 2004. "The determinants of the overnight interest rate in the euro area," Working Paper Series 393, European Central Bank.
    4. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
    5. Mr. Nathan Porter & Ms. TengTeng Xu, 2009. "What Drives China’s Interbank Market?," IMF Working Papers 2009/189, International Monetary Fund.
    6. Nikolaos Panigirtzoglou & James Proudman & John Spicer, 2000. "Persistence and volatility in short-term interest rates," Bank of England working papers 116, Bank of England.
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    Cited by:

    1. Piotr Fiszeder & Ilona Pietryka, 2018. "Monetary policy in steering the EONIA and POLONIA rates in the Eurosystem and Poland: a comparative analysis," Empirical Economics, Springer, vol. 55(2), pages 445-470, September.

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