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Household demand for treasury bonds and time deposits in a small open economy

Author

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  • Michał Łesyk

    (Narodowy Bank Polski)

  • Grzegorz Wesołowski

    (Narodowy Bank Polski)

Abstract

We examine the demand for retail treasury bonds and time deposits in Poland, a typical small open economy with an independent monetary policy. To this end we first employ instrumental variable, OLS and two GMM regressions based on asset demand functions derived from the microfounded household utility maximization model. We find that bonds and deposits are imperfect substitutes with the elasticity of substitution somewhat higher than the US counterpart. Next, we construct an asset aggregate consisting of bonds and deposits and find that it depends negatively on interest rate in Poland consistent with theoretical predictions with the price elasticity being close to the one estimated for the United States. Our findings suggest an effective monetary policy transmission to household assets as well as a need for active bond issuance policy of the government in countries like Poland.

Suggested Citation

  • Michał Łesyk & Grzegorz Wesołowski, 2025. "Household demand for treasury bonds and time deposits in a small open economy," NBP Working Papers 378, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:378
    Note: The authors thank Marcin Bielecki, Adam Czerniak, Paweł Kopiec, Dorota Ścibisz, Piotr Zawadzki, the anonymous referee and participants at the internal NBP seminar for useful comments and discussions. The views expressed herein are those of the authors and not those of the institutions they are affiliated with.
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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