POLONIA dynamics during the years 2006–2012 and the effectiveness of the monetary Policy of the National Bank of Poland

Abstract

In the study we investigate the effectiveness of the National Bank of Poland in counteracting the negative results of the financial crisis in the Polish interbank market. The situation was exceptional in a sense, that during the period of the financial crisis the Polish interbank market experienced liquidity surplus, and the main problem of the central bank was to regain confidence among commercial banks and stimulate interbank transactions. We concentrate on the spread between the rate of overnight interbank loans and the reference rate and based upon its dynamics we assess the monetary policy of the Polish central bank. Using econometric techniques we study how the central bank influenced the spread, when its control over it weakened and when was it strengthened. The study is supported by the results of the survey directed to the headquarters of commercial banks. We conclude that the ability of the central bank to control overnight rate wasThe views in this paper should be regarded as those of the author, and do not necessarily reflect those of the National Bank of Poland. temporarily lost during the first phases of the financial crisis, but gradually regained after implementation of the confidence pact.The aim of the research was to assess the ability of the Polish central bank to control the rate of overnight loans in the Polish interbank market and conduct its monetary policy during the confidence crisis, as well as facing the liquidity surplus. The Polish interbank market is special in a sense that liquidity surplus has been present there even since 1994 (National Bank of Poland 2009). However, together with the outbreak of the financial crisis, the confidence in the Polish interbank market declined drastically. Commercial banks preferred to accumulate liquidity surplus and performed almost no interbank transactions of maturity longer than 7 days. Banks preferred to keep their surplus on their current accounts with the central bank or in the form of deposit facility, and they significantly limited participation in the 7-day open market operations conducted by the National Bank of Poland (NBP) (National Bank of Poland 2009). The latter resulted in the so called underbidding (i.e. the situation during the tenders for the NBP bills, when the banks' total bid is lower than the supply offered by the central bank). As a consequence, the effectiveness of the central bank in stabilization of the market rates, what is one of the main goals of the monetary policy, diminished significantly.Our goal was to assess the effectiveness of the monetary policy of the Polish central bank, using econometric methods, as well as with respect to the results of the survey, sent to the head-quarters of the Polish commercial banks. The problem of assessing the effectiveness of the stabilization policy of central banks using econometric methods is also rather new in literature. Panigirtzoglou et al. (2000) studied the effectiveness of controlling the interbank rates through the key interest rates of the central banks of Grea...

Determinants of the Spread Between POLONIA Rate and the Reference Rate: Dynamic Model Averaging Approach

“…Similar analysis for the spread of POLONIA was performed by Kliber and Płuciennik [2011] and Kliber et al [2016]. In the last paper, econometric analysis was supported by the results of the survey directed to the headquarters of commercial banks.…”

Monetary policy in steering the EONIA and POLONIA rates in the Eurosystem and Poland: a comparative analysis

“…On 11 December 2010, the NBP implemented irregular, shortterm fine-tuning operations during the reserve maintenance period. Additionally, it introduced overnight fine-tuning operations on the last day of the maintenance period on 29 June 2011 (Kliber et al 2015). The frontloading requirement caused the fall in the level and the rise in the volatility of the POLONIA spread.…”

“…In the following studies, the influence of the NBP on the POLONIA rate was analysed: Płuciennik (2011), Ho andLu (2012) and Kliber et al (2015). In the first two studies, the linear regression model was applied in parallel with the component GARCH and EGARCH models in the first and second studies, respectively.…”

“…In the first two studies, the linear regression model was applied in parallel with the component GARCH and EGARCH models in the first and second studies, respectively. Kliber et al (2015) used the ARFIMA model with explanatory variables in parallel with the stochastic volatility model. The time-varying conditional volatility of the spread was found only for three out of seven periods, but it was probably caused by the very short periods applied.…”

“…This finding was made possible by the application of the ARFIMA-GARCH model with explanatory variables in the mean equation. Kliber et al (2015) found a long memory in the POLONIA spread for only one out of seven periods. The persistence of the spread was also analysed by Panigirtzoglou et al (2000) for Germany, Italy, and the UK; by Hassler and Nautz (2008) for the Eurosystem; and by Kliber and Płuciennik (2011) for Poland.…”