Is Poland at Risk of the Zero Lower Bound?
In early 2015, the policy (open market operations) rate of Narodowy Bank Polski was reduced to an all- -time low of 1.5%. At the same time, prices of consumer goods and services dropped by 1.5% in year-on- -year terms. This raised concerns that Poland might become the next country to hit the zero lower bound (ZLB) constraint on nominal interest rates. The purpose of this paper is to examine the scale of this risk and its possible consequences. According to our results, the odds of the Polish economy hitting the ZLB remain low, despite having risen considerably in 2014-2015. At the same time, the consequences of such a scenario would be substantial as the ZLB would amplify the economy's responses to adverse demand shocks and make their impact more persistent. The current level of the inflation target (2.5%) protects the Polish economy against the zero lower bound to a signifficant degree. However, its potential reduction would significantly increase the likelihood that this threat materializes. (original abstract)
- Adam K., Billi R.M. (2006), Optimal monetary policy under commitment with a zero bound on nominal interest rates, Journal of Money, Credit and Banking, 38(7),1877-1905.
- Adam K., Billi R.M. (2007), Discretionary monetary policy and the zero lower bound on nominal interest rates, Journal of Monetary Economics, 54(3), 728-752.
- Adolfson M., Laseen S., Linde J., Villani M. (2007), Bayesian estimation of an open economy DSGE model with incomplete pass-through, Journal of International Economics, 72(2),481-511.
- Baurle G., Kaufmann D. (2014), Exchange rate and price dynamics in a small open economy - the role of the zero lower bound and monetary policy regimes, Working Papers, 2014-10, Swiss National Bank.
- Billi R.M. (2013), Nominal GDP targeting and the zero lower bound: Should we abandon inflation targeting?, Working Paper Series, 270, Sveriges Riksbank.
- Blanchard O., Dell'Ariccia G., Mauro P. (2010), Rethinking macroeconomic policy, Journal of Money, Credit and Banking, 42(s1), 199-215.
- Bodenstein M., Erceg C.J., Guerrieri L. (2009), The effects of foreign shocks when interest rates are at zero, International Finance Discussion Papers, 983, Board of Governors of the Federal Reserve System.
- Brzoza-Brzezina M. (2016), Amplification of shocks at the zero lower bound in a small open and large closed economy, Applied Economics Letters, forthcoming.
- Buiter W.H. (2009), Negative nominal interest rates: three ways to overcome the zero lower bound, The North American Journal of Economics and Finance, 20(3), 213-238.
- Buiter W.H., Panigirtzoglou N. (2003), Overcoming the zero bound on nominal interest rates with negative interest on currency: Gesell's solution, Economic Journal, 113(490),723-746.
- Bussiere M., Callegari G., Ghironi F., Sestieri G., Yamano N. (2013), Estimating trade elasticities: demand composition and the trade collapse of 2008-2009, American Economic Journal: Macroeconomics, 5(3), 118-115.
- Chen Q., Filardo A., He D., Zhu F. (2015), Financial crisis, US unconventional monetary policy and international spillovers, BIS Working Papers, 494, Bank for International Settlements.
- Christoffel K., Coenen G., Warne A. (2008), The New Area-Wide Model of the euro area: a micro- -founded open-economy model for forecasting and policy analysis, Working Paper Series, 0944, European Central Bank.
- Coibion O., Gorodnichenko Y., Wieland J. (2012), The optimal inflation rate in New Keynesian models: Should central banks raise their inflation targets in light of the zero lower bound?, Review of Economic Studies, 79(4), 1371-1406.
- D'Amico S., King T.B. (2010), Flow and stock effects of large-scale Treasury purchases, Finance and Economics Discussion Series, 2010-52, Board of Governors of the Federal Reserve System.
- Engen E.M., Laubach T., Reifschneider D.L. (2015), The macroeconomic effects of the Federal Reserve's unconventional monetary policies, Finance and Economics Discussion Series, 2015-5, Board of Governors of the Federal Reserve System.
- Gagnon J., Raskin M., Remache J., Sack B. (2011), The financial market effects of the Federal Reserve's large-scale asset purchases, International Journal of Central Banking, 7(1), 3-43.
- Gali J., Moncacelli T. (2005), Monetary policy and exchange rate volatility in a small open economy, Review of Economic Studies, 73(3), 707-734.
- Gambacorta L., Hofmann B., Peersman G. (2012), The effectiveness of unconventional monetary policy at the zero lower bound: a cross-country analysis, BIS Working Papers 384, Bank for International Settlements.
- Grabek G., Kos B., Koloch G. (2011), SOEPL 2009 - an estimated dynamic stochastic general equilibrium model for policy analysis and forecasting, National Bank of Poland Working Papers, 83, National Bank of Poland.
- Gradzewicz M., Makarski K. (2013), The business cycle implications of the euro adoption in Poland, Applied Economics, 45(17), 2443-2455.
- Greenwood R., Vayanos D. (2008), Bond supply and excess bond returns, NBER Working Papers, 13806, National Bureau of Economic Research.
- Guerrieri L., Iacoviello M. (2015), OccBin: A toolkit for solving dynamic models with occasionally binding constraints easily, Journal of Monetary Economics, 70(C), 22-38.
- Gust C., Lopez-Salido D., Smith M.E. (2012), The empirical implications of the interest-rate lower bound, Finance and Economics Discussion Series, 2012-83, Board of Governors of the Federal Reserve System.
- Haberis A., Lipinska A. (2012), International policy spillovers at the zero lower bound, Finance and Economics Discussion Series, 2012-23, Board of Governors of the Federal Reserve System.
- Hamilton J.D., Wu J.C. (2012), The effectiveness of alternative monetary policy tools in a zero lower bound environment, Journal of Money, Credit and Banking, 44, 3-46.
- Ireland P.N. (2011), A New Keynesian perspective on the Great Recession, Journal of Money, Credit and Banking, 43(1), 31-54.
- Joyce M.A.S., Lasaosa A., Stevens I., Tong M. (2011) The financial market impact of quantitative easing in the United Kingdom, International Journal of Central Banking, 7(3), 113-161.
- Justiniano A., Preston B. (2010), Monetary policy and uncertainty in an empirical small open-economy model, Journal of Applied Econometrics, 25(1), 93-128.
- Kolasa M. (2009), Structural heterogeneity or asymmetric shocks? Poland and the euro area through the lens of a two-country DSGE model, Economic Modelling, 26(6), 1245-1269.
- Krishnamurthy A., Vissing-Jorgensen A. (2011), The effects of quantitative easing on interest rates: channels and implications for policy, Brookings Papers on Economic Activity, 43(2), 215-287.
- Mankiw G.M. (2009), It may be time for the Fed to go negative, The New York Times, 18 April.
- Nakov A. (2008), Optimal and simple monetary policy rules with zero floor on the nominal interest rate, International Journal of Central Banking, 4(2), 73-127.
- Neri S., Notarpietro A. (2014), Inflation, debt and the zero lower bound, Questioni di Economia e Finanza (Occasional Papers), 242, Bank of Italy.
- Obstfeld M., Rogoff K. (1995), Exchange rate dynamics redux, Journal of Politycal Economy, 103(3), 624-660.
- Svensson L.E.O. (2003), Escaping from a liquidity trap and deflation: the foolproof way and others, Journal of Economic Perspectives, 17(4), 145-166.
- Woodford M. (2012), Methods of policy accommodation at the interest-rate lower bound, The Kansas City Fed's Jackson Hole Economic Policy Symposium "The Changing Policy Landscape.