Tomasz Lyziak

Structural Econometric Models in Forecasting Inflation at the National Bank of Poland

The paper presents the procedure and two structural macroeconometric models used at the National Bank of Poland for producing regular quarterly inflation projections. One of the models is a small macroeconomic model based on the New Keynesian Phillips curve, the IS curve and the exchange rate equation based on uncovered interest parity with risk factors. The other, more disaggregated model, explicitly focuses on the supply side and separates the steady state from short-term adjustments.

Consumer Inflation Expectations: Survey Questions and Quantification Methods - The Case of Poland

Qualitative data on inflation perceptions and expectations, as obtained from surveys, can be quantified into numerical indicators of the perceived and expected rates of price change. This paper presents the results of different versions of probability and regression methods, implemented in order to estimate Polish consumer inflation perceptions and predictions, based on monthly consumer surveys. The paper also discusses the limited usefulness of quantitative questions, which occur to be excessively difficult for a significant part of respondents, whose numerical declarations are inconsistent with opinions expressed in a qualitative manner

A new approach to probabilistic surveys of professional forecasters and its application in the monetary policy context

In this paper we present the NBP Survey of Professional Forecasters introduced in 2011 by the National Bank of Poland. It is a new survey that allows analysis of macroeconomic forecasts of professional economists, including their probabilistic forecasts of CPI inflation, GDP growth and the NBP reference rate. In the paper we discuss in detail survey methodology, whose some elements are novel. It refers especially to the construction of probabilistic survey questions. Instead of declaring probabilities that in a certain horizon a given variable will be in pre-defined intervals, NBP SPF experts declare median and the limits of a 90-percent probability range between the 5th and 95th percentile of their subjective probability distributions. To present the benefits from the applied design of the NBP SPF, we describe the first results obtained from the NBP SPF.

How to Define the Consumer Perceived Price Index? The Case of Poland

Inflation perceived by consumers may differ from official statistics particularly due to different baskets of goods and services lay people and statisticians consider and by consumer loss aversion to price increases. Such effects, as suggested by the Prospect Theory, are confirmed in many empirical studies, showing that consumers are substantially influenced by prices of frequent purchases and that price increases are perceived more strongly than price decreases. Following those observations, particularly useful in interpreting a jump of inflation perception in some of the EMU economies after the euro introduction, an alternative price index, i.e. the Index of Perceived Inflation, was proposed by Brachinger (2006) and Brachinger (2008). The role of price changes of frequently bought goods and services in determining consumer opinions on price changes was also significant in Poland, especially after its accession to the EU. To assess whether this effect is of a systematic nature, in this paper we develop different indices of price changes of frequently bought goods and services in Poland, including the Index of Perceived Inflation. Then we evaluate these indices vs. CPI inflation in terms of their impact on consumer inflation perception, as proxied with survey data. The results suggest that Polish consumers observe a relatively wide range of goods and services and that both factors suggested by the Prospect Theory seem to influence their opinions on evolution of prices in the past. Having the measure of perceived inflation – i.e. the Consumer Perceived Price Index (CPPI) – that seems more adequate than current CPI inflation on the one hand and survey-based measures of perceived inflation scaled with respect to the trend of CPI inflation on the other hand, we use it as a scaling factor to derive a probability measure of consumer inflation expectations in Poland. Then we compare forecasting accuracy of this measure with respective results based on the measure of consumer inflation expectations quantified in a standard manner.

Inflation Expectations in Poland

This paper presents survey-based direct measures of inflation expectations of consumers, enterprises and financial sector analysts in Poland. It then goes on to provide the results of testing those features of inflation expectations that seem the most important from the point of view of monetary policy and its transmission mechanism. Characteristics of inflation expectations in Poland are diversified across the analysed groups of economic agents. Inflation expectations of financial sector analysts and enterprises outperform those of consumers in terms of their accuracy and information content, however also consumer inflation expectations are to some extent forward-looking.

A Note on Central Bank Transparency and Credibility in Poland

This note extends the study by Lyziak et al. (2007), providing up-to-date assessment of central bank transparency in Poland. We highlight the role of inflation projections prepared by the staff of the National Bank of Poland in building transparency of monetary policy. The results suggest that central bank inflation projections, published since 2004, have led to improvements in the predictability of interest rate decisions. The note updates also previous estimates of the degree of central bank credibility in Poland, using survey-based measures of inflation expectations formed by consumers, enterprises and financial sector analysts. It is confirmed that inflation expectations of enterprises and – especially – of financial sector analysts display a high degree of anchoring at the NBP inflation target, while consumer inflation expectations are driven mainly by developments in subjectively perceived inflation.

The Impact of Financial Crisis and Low Inflation Environment on Short-Term Inflation Expectations in Poland

To what extent financial crisis whose sharp face begun in 2008 and low inflation environment that started in 2013 affect inflation expectations in Poland? Have inflation expectations of the private sector become more forward-looking? Is monetary policy still able to influence expectations as compared with the pre-crisis period? Those are the main questions addressed in this paper. To answer them we analyse survey-based measures of inflation expectations of consumers, enterprises and financial sector analysts. Estimation of simple and extended hybrid models of inflation expectations combined with verification of orthogonality of expectational errors with respect to available information leads us to the conclusion that since 2008 inflation expectations of enterprises and financial sector analysts have become more forward-looking, better exploiting available information and more sensitive to interest rate changes and developments in the real economy. At the same time formation of consumer inflation expectations has not been affected significantly.

Do Inflation Expectations Matter in a Stylised New Keynesian Model? The Case of Poland

This paper estimates different versions of a stylised New Keynesian model of the Polish economy, in which alternative measures of inflation expectations are used. They include: model-based (rational) expectations as well as survey measures of inflation expectations formed by consumers, enterprises and financial sector analysts. After estimating the models we verify to what extent the use of different measures of inflation expectations affects the assessment of the monetary transmission mechanism, the exchange rate pass-through and the sacrifice ratio. Simulation results show different responses in all the analysed areas. For example, the maximum reaction of CPI inflation to the interest rate impulse is almost twice bigger if the direct measures of financial sector analysts are used instead of model-consistent expectations. Also the model with survey-based measures of producer inflation expectations displays stronger response of inflation to monetary policy impulse than the model, in which rational expectations are assumed. Estimates of the exchange rate pass-through from the models with survey-based expectations are very similar to each other, but stronger than in the model with rational expectations. The sacrifice ratio seems similar in the case of all versions of the New Keynesian model except its version with consumer inflation expectations that shows significantly larger output loss resulting from a permanent reduction of the inflation target than the other models. Differences in the assessment how monetary factors affect macroeconomic variables, particularly inflation, pose the question which model should be treated as the most adequate. To answer this question we run in-sample simulations, calculating inflation forecasting errors of all the models under consideration. We conclude that the model that assumes rational inflation expectations displays the lowest forecasting accuracy, while the model using inflation expectations of enterprises is the best-performing model. It suggests that the assumption of rational inflation expectations does not match the actual data well. Inflation expectations of Polish enterprises seem the most relevant from the macroeconomic point of view – more relevant than inflation expectations of consumers and financial sector analysts.

Inflation Expectations in Poland, 2001-2013 Measurement and Macroeconomic Testing

This paper presents survey-based direct measures of inflation expectations of consumers, enterprises and financial sector analysts in Poland. It then goes on to provide the results of testing those features of inflation expectations that seem the most important from the point of view of monetary policy and its transmission mechanism. The study is the revised version of the NBP Working Paper no. 115 [ Lyziak (2012)]. It uses new measures of consumer inflation expectations and covers the updated sample (2001- 2013). Characteristics of inflation expectations in Poland are diversified across the analysed groups of economic agents. Inflation expectations of financial sector analysts and enterprises outperform those of consumers in terms of their accuracy and information content, although consumer inflation expectations are also to some extent forward-looking.

Money in Monetary Policy: Information Variable? Channel of Monetary Transmission? What is its Role in Poland?

The paper provides an overview of the literature on the role of monetary aggregates for conducting monetary policy and attempts to assess the role of these aggregates in the Polish monetary policy. We compare theoretical and empirical arguments which justify or undermine the need for usage of monetary aggregates by central banks, as well as arguments indicating related problems. We describe the most important areas of the discussion on the role of money in monetary policy. We present studies on the information content of money and the use of that information in the Polish central banks monetary policy between 1998 and 2011.