Tomasz Łyziak

Monetary Policy Transmission Disturbances During the Financial Crisis

The aim of this paper is to show the implications of the current financial crisis for the monetary transmission mechanism (MTM) and its effectiveness in Poland, which is an inflation-targeting emerging market economy. MTM depends on monetary policy, but also on structural features of the economy. Financial crisis can affect both. Our results based on Polish data suggest a change in the monetary policy rule and a significant drop in overall monetary policy effectiveness. Unlike disturbances in the interest rate pass-through, which reflect an increased perception of risk and result from the financial crisis, the more pronounced role of credit market imperfections and the weakening of the exchange rate channel can be viewed as typical phenomena in the current phase of the business cycle. However, the magnitude of the crisis, the likely changes in the regulatory framework, and adjustments in macroeconomic policies can result in the deeper evolution of the MTM.

How to Define the Consumer Perceived Price Index? An Application to Polish Data

Inflation perceived by consumers may differ from official statistics, particularly due to different baskets of goods and services that lay people and statisticians consider and due to consumer loss aversion to price increases. Such effects, as suggested by the prospect theory, are confirmed in many empirical studies showing that consumers’ perceptions are substantially influenced by prices of frequent purchases and that price increases are perceived more strongly than price reductions. Following those observations, alternative consumer price indices were proposed, such as the out-of-pocket price index (ECB 2003) or the index of perceived inflation (Brachinger 2006, 2008). They proved particularly useful in interpreting a jump of inflation perception in some of the Economic and Monetary Union (EMU) economies after the euro introduction. The role of price changes of frequently bought goods and services in determining consumer opinions on price changes also seems significant in Poland, as revealed especially after its accession to the European Union (EU) in 2004. To assess whether their impact on subjectively perceived price changes is of a systematic nature, in this paper we develop different types of indices of price changes that are likely to influence consumer opinions on observed price developments. Then we evaluate them in terms of their impact on consumer inflation perception, as proxied with survey data, and define on this basis the best-performing index, called the consumer perceived price index (CPPI). 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 the evolution of prices in the past.

Survey measures of inflation expectations in Poland: are they relevant from the macroeconomic perspective?

ABSTRACT This paper estimates different versions of the stylized New Keynesian model of the Polish economy, in which alternative measures of inflation expectations are used, that is, model-consistent (rational) expectations and survey-based expectations of consumers, enterprises and financial sector analysts. To compare dynamic properties of the models, we analyse propagation of the interest rate impulse, exchange rate impulse and a permanent change of inflation target. Differences in impulse responses pose the question which model should be treated as the most adequate. Analysis of in-sample inflation forecasting errors suggests that the model with rational expectations displays the lowest forecasting accuracy, while the model using expectations of enterprises is the best-performing model. In more general terms, our analysis suggests the best way of exploiting survey data on inflation expectations is not by using them as separate forward-looking information, alternative to macroeconomic models, but by combining both types of information.