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Actual monetary policy independence in a small open economy: the Polish perspective

Author

Listed:
  • Łukasz Goczek

    () (University of Warsaw)

  • Dagmara Mycielska

    () (University of Warsaw)

Abstract

Abstract The aim of this article is to examine the actual degree of monetary policy independence in a small open economy with floating exchange rate that is integrated with the world economy. It is frequently argued that for such a country the primary cost of participation in a currency area is the loss of monetary policy independence. The article raises the question if the proposition of monetary independence provided by floating exchange rate applies to a small open economy, operating within highly liberalised capital flows and highly integrated financial markets. We examine the actual degree of monetary policy independence in Poland using a vector error correction mechanism model and the data for the years 2001–2014. We obtain evidence pointing to the lack of such independence, and we show that this result is robust to extensive changes in specification, including impulse saturation.

Suggested Citation

  • Łukasz Goczek & Dagmara Mycielska, 2019. "Actual monetary policy independence in a small open economy: the Polish perspective," Empirical Economics, Springer, vol. 56(2), pages 499-522, February.
  • Handle: RePEc:spr:empeco:v:56:y:2019:i:2:d:10.1007_s00181-017-1370-y
    DOI: 10.1007/s00181-017-1370-y
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    References listed on IDEAS

    as
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    Cited by:

    1. Milan Deskar-Škrbić & Karlo Kotarac & Davor Kunovac, 2019. "The Third Round of the Euro Area Enlargement: Are the Candidates Ready?," Working Papers 57, The Croatian National Bank, Croatia.

    More about this item

    Keywords

    Small open economy; Monetary policy independence; Monetary union; Poland;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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