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Do long term interest rates drive GDP and inflation in small open economies? Evidence from Poland

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  • Grzegorz Wesołowski

Abstract

I show that the long term interest rate that includes a time-varying term premium stabilizes GDP and it does not affect significantly inflation volatility in Poland. I derive this result from an estimated DSGE model of a small open economy. GDP volatility would have been much higher if the endogenous part of the term premium had been switched off in the model, while the inflation volatility has not been affected by the presence of the term premium. At the same time, the term premium shock had only a minor impact on GDP and inflation volatilities which suggests that the QE programs conducted by the major central banks did not have a substantial impact on the Polish economy.

Suggested Citation

  • Grzegorz Wesołowski, 2016. "Do long term interest rates drive GDP and inflation in small open economies? Evidence from Poland," NBP Working Papers 242, Narodowy Bank Polski, Economic Research Department.
  • Handle: RePEc:nbp:nbpmis:242
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    Cited by:

    1. Mariusz Kapuściński, 2017. "Monetary policy and financial asset prices in Poland," Bank i Kredyt, Narodowy Bank Polski, vol. 48(3), pages 263-294.
    2. Mitsuru Katagiri & Koji Takahashi, 2017. "Do Term Premiums Matter? Transmission via Exchange Rate Dynamics," Bank of Japan Working Paper Series 17-E-7, Bank of Japan.

    More about this item

    Keywords

    long term interest rates; time-varying term premium; business cycle; small open economy;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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