Reaction functions of the Polish central bankers. A logit approach
AbstractPaper presents the analysis of individual reactions functions of Polish Monetary Policy Council (MPC) members in the years 2004–2005. In the period under study the Polish central bank (National Bank of Poland) used the bias in the monetary policy as an indicator of future interest rate movements and a change of bias without a change in the short-term interest rate resulted in shifts of the yield curve comparable to those which accompanied changes in the short-term interest rate. For that reason as a monetary policy instrument in the reaction functions we use a qualitative variable, which expresses the direction of change in the restrictiveness of the monetary policy proposed by the given member of the MPC (the change of bias and/or change of central bank short-term interest rate). Taking into account the qualitative nature of the dependent variable, we employ the ordered logit model, where several variants of the reaction functions are tested. The results of the research indicate that the majority of the Polish MPC members acted forward looking rather then backward looking. The classical Taylor’s backward looking reaction function has been rejected by the data for most MPC members. Moreover the substitution of the lagged inflation by the future inflation improved the quality of the all considered models. On the other hand in the forward looking reaction function with the inflation expectations formulated for 12 months ahead the variable expressing the expectations has been significant in 6 out of 7 individual functions. The research has been completed by the sensitivity analysis of the behaviour of the MPC members against changes in the current and future inflation and changes in the output gap.
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Bibliographic InfoPaper provided by Department of Applied Econometrics, Warsaw School of Economics in its series Working Papers with number 18.
Length: 27 pages
Date of creation: 22 May 2005
Date of revision:
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More information through EDIRC
Monetary policy; policy rules; reaction function; ordered logit model;
Find related papers by JEL classification:
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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