The assessment of use of the traditional monetary transmission mechanism by the National Bank of Poland in 2014–2018

Abstract

Background: One of the main factors conditioning effective communication of the central bank with entities of real and financial spheres is the rational use of specific channels for the propagation of monetary impulses. The most common “type of communication” of that is the interest rate channel. These interest rates are the most important component of the so-called “traditional monetary transmission mechanism”, which – in theoretical terms – assumes that the lowering of market interest rates by the Monetary Policy Council should stimulate the socio-economic development of state, manifested by increase: money in circulation (money supply), size of investments and level of Gross Domestic Product.

Research purpose: The aim of this article was to examine the effectiveness of using traditional monetary transmission mechanism by the National Bank of Poland in 2014–2018, as well as to determine the degree of correlation between interest rates and other components of this mechanism.

Methods: The possibility of achieving the indicated objective was conditioned by carrying out a specific research procedure, based on – firstly – showing the nominal values of individual components of the traditional monetary transmission mechanism, secondly – determining the medium-term rate of change of these quantities, and – thirdly – calculating the values of linear correlation coefficients Pearson and linear determination, on the basis of which were examined strength and direction of correlations between value of interest rates (lombard, rediscount, reference and deposit) and the level of Gross Domestic Product, investments and money supply. Due to the fact that the detailed scope of empirical data necessary to conduct the research is collected and published by the National Bank of Poland and the Central Statistical Office, the study is based on secondary data from the reports of the aforementioned institutions.

Conclusions: The results obtained in the course of the calculation procedure indicate that in the years 2014–2018 the National Bank of Poland rationally used the interest rate channel. The decisions of the Monetary Policy Council regarding the reduction of the level of short-term interest rates resulted in growth of: money supply, investments and Gross Domestic Product. It should be noted that between the economic measures there was a very strong (interest rates and money supply), a strong (interest rates and Gross Domestic Product) or – at least – a moderate (interest rates and investments) degree of correlation with minus direction. This means that in the period covered by the study, the National Bank of Poland effectively used the traditional monetary transmission mechanism.