Andrzej Torój

Macroeconomic adjustment and heterogeneity in the euro area

We revisit the subject of country-level macroeconomic adjustment in the euro area in theabsence of autonomous monetary and exchange rate policy. We discuss how the procyclical real interest rate mechanism and the competitiveness channel of adjustment interact with various aspects of cross-country heterogeneity. Long-term differentials in steady-state inflation (due to structural factors, such as Balassa-Samuelson effect) and natural interest rate do not rule out the existence of an equilibrium, as long as they are offset by additional price level differentials. GMM estimates of the parameters of our stylized New Keynesian model imply that the competitiveness channel is effectively at work in EMU 12 in the sense of real exchange rate influence on the output gap, but market flexibility necessary to triggershifts in REER remains below the standards in New Keynesian empirical literature. They also suggest that the risk of the real interest rate effect is additionally reduced by low output gap responsiveness to country-specific real interest rates and mainly results from intrinsic inflation persistence. Our model does not confirm the existence of a premium when foreign markets are more rigid in relative terms. Promoting market flexibility, combating intrinsic inflation persistence and anchoring inflation expectations remain the main challenges for policymakers.

Estimation of weights for the Monetary Conditions Index in Poland

In this paper, we follow the econometric approach to assess relative importance of real interest rate and real exchange rate for the monetary conditions in Poland, quantified as weights for Monetary Conditions Index (MCI). We consider both single- and multiple-equation specifications proposed in the literature with an application to Poland. Although MCI is nowadays broadly considered a rather obsolete indicator in monetary policy conduct, we argue that the econometric framework used for this purpose could be a good departure point when modelling monetary adjustments in a monetary union, provided correct dynamic specification of the models.

Indirect costs of diabetes and its impact on the public finance: the case of Poland

ABSTRACT Background: Growing public and private expenditure on healthcare results i.a. from the spreading of chronic diseases. Diabetes belongs to the most frequent ones, beyond neoplasms and cardiological diseases, and hence generates a significant burden for the public finance in terms of the direct costs. However, the economy suffers also from the indirect cost of diabetes that manifests itself in the loss in Gross Domestic Product (GDP) and general government revenues. Methods: This paper aims to measure this indirect cost, both in terms of GDP drop (social perspective) and public revenue drop (public finance perspective), in the case of Poland in 2012–2014. We use a modified human capital approach and unique dataset provided by the Social Security institution in Poland and the Polish Central Statistical Office. Results: Diabetes is a substantial and growing burden for the Polish economy. In the years 2012, 2013 and 2014 the indirect cost (output loss) amounted to 1.85 bn USD, 1.94 bn USD and 2.00 bn USD respectively. Conclusions: Estimated indirect cost of diabetes can be a useful input for health technology analyses of drugs or economic impact assessments of public health programmes.

Competitiveness Channel in Poland and Slovakia: A Pre-EMU DSGE Analysis

Once a country joins a monetary union, an efficient competitiveness channel is considered to be the main substitute for the abandoned autonomous monetary and exchange rate policy. This paper attempts to make an empirical assessment of how the price competitiveness of domestic producers stabilizes the Polish and Slovak economies against the background of potentially procyclical real interest rates in EMU. To address this issue, we use a small open economy DSGE model. We compare the FIML estimates and resulting IRFs for Poland and Slovakia, concluding that the latter country seems in general to be more capable of handling asymmetric shocks under the common monetary policy. Also, if there was a natural interest rate disparity of 1 percentage point in favour of a catching-up economy and agents expected a 30-year long period of closing this gap, our model would predict a terms of trade appreciation for both countries in question, whereby the required appreciation would be more pronounced for Poland than for Slovakia (5.1% and 3.4% respectively). In the context of Slovak revaluations in ERM II, this could be taken into consideration when setting the final conversion rate, along with its further pros and cons.