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VAR-ing Monetary Policy in Poland

  • Wojciech Maliszewski
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    The paper makes an attempt to estimate the effects of monetary policy shocks on the economy. We estimate four variables VAR system with industrial production, CPI, money market rate and exchange rate. Two policy indicators: money market interest rate and exchange rate are assumed to be contemporaneously influenced by monetary policy shocks. The identification of the shocks is obtained by assigning weights to these two variables in the short run monetary condition index. The response functions generated by the small VAR system have reasonable shapes and economic interpretations: monetary policy shock seems to affect inflation and output relatively quickly. Granger causality tests reveals that although money market rate has limited predictive power in forecasting industrial production and CPI, the predictive power of exchange rate is very significant for the CPI. Decomposition of variance of the forecasted variables is consistent with these results: monetary policy shocks have significant contribution to the forecast variance of CPI.

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    File URL: http://www.case-research.eu/upload/publikacja_plik/SA188.pdf
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    Paper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0188.

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    Length: 24 Pages
    Date of creation: 1999
    Date of revision:
    Handle: RePEc:sec:cnstan:0188
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    1. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
    2. Ben S. Bernanke & Ilian Mihov, 1996. "What Does the Bundesbank Target?," NBER Working Papers 5764, National Bureau of Economic Research, Inc.
    3. Fank Smets, 1997. "Measuring Monetary Policy Shocks in France, Germany and Italy: The Role of The Exchange Rate," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 133(III), pages 597-616, September.
    4. Romer, Christina D. & Romer, David H., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Department of Economics, Working Paper Series qt5h07k8vf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    5. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
    6. Strongin, Steven, 1995. "The identification of monetary policy disturbances explaining the liquidity puzzle," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 463-497, June.
    7. Piero Ugolini, 1996. "National Bank of Poland; The Road to Indirect Instruments," IMF Occasional Papers 144, International Monetary Fund.
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