Monetary Policy Transmission to the Labour Market – Evidence From the Polish Economy
Przemysław Włodarczyk
Department of Macroeconomics, Faculty of Economics and Sociology, University of LodzAbstract
This article verifies the hypothesis of a short-run impact of undertaken monetary policy on the labour market stance, advocated by the Keynesian/monetarist strand of economic theory. The analyses are performed within a small open economy framework, using data with regards to Poland in the 2000:1–2016:5 period. The research takes into account the high volatility of economic processes in the developing economies as well as their natural business cycle fluctuations and uses Markov Switching Bayesian Structural Vector Autoregressive models. The presented results confirm that there exists a nexus between monetary policy and the levels of output, inflation and the real effective exchange rate in the Polish economy. There is however no statistically significant relation between the employment level and changes in monetary policy. In this respect, the results are in line with the monetarist theory rather than with the traditional Keynesian\new Keynesian view.
Keywords:
monetary policy transmission, labour market, output, inflation, Markov Switching Bayesian Structural Vector Autoregressive modelReferences
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Boyarchenko N., HaddadV., PlosserM.C. 2016. The Federal Reserve and Market Confidence. Federal Reserve Bank of New York Staff Reports 773.
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King R.G., Watson M.W. 1997. Testing Long-Run Neutrality. Federal Reserve Bank of Richmond Economic Quarterly, 83(3): 69-101.
Lucas R.E. Jr. 1972. Expectations and the Neutrality of Money. Journal of Economic Theory, 4(2): 102-124.
McCallum B.T., Nelson E. 2011. Money and Inflation: Some Critical Issues. In: Handbooks in Economics. Monetary Economics. Vol. 3A. Eds. B.M. Friedman, M. Woodford. North-Holland, Amsterdam, San Diego, CA.
McCandless G.T. JR., Weber W.E. 1995. Some Monetary Facts. Federal Reserve Bank of Minneapolis Quarterly Review, 19(3): 2-11.
Nalban V. 2016. Sentiment-Driven Asymmetries in Romanian Monetary Policy Transmission. Eastern European Economics, 54: 251-270.
Palley T.I. 2011. Quantitative easing: a Keynesian critique. Investigación económica, 70(277): 69-86.
Peersman G, Smets F. 2001. The monetary transmission mechanism in the euro area: more evidence from VAR analysis. European Central Bank Working Paper Series, 91.
Phillips A.W. 1958. The relation between unemployment and the rate of change of money wage in the United Kingdom, 1861-1957. Econometrica, 25(100): 283-299.
Sargent T.J., Wallace N. 1975. Rational Expectations, the Optimal Monetary Instrument, and the Optimal Monetary Supply Rule. Journal of Political Economy, 83(2): 241-254.
Sargent T.J., Wallace N. 1976. Rational Expectations and the Theory of Economic Policy. Journal of Monetary Economics, 2(2): 169 -183.
Sims C.A. 1972. Money, Income and Causality. American Economic Review, 62(4): 540-552.
Sims C.A. 1980. Comparison of Interwar and Postwar Business Cycles. American Economic Review, 70(2): 250-257.
Sims C.A. 1986. Are Forecasting Models Usable for Policy Analysis? Federal Reserve Bank of Minneapolis Quarterly Review, 10(1): 2- 16.
Sims C.A., Wagonner D.F., Zha T. 2008. Methods for inference in large multiple-equation Markov-switching models. Journal of Econometrics, 146: 255-274.
Sims C.A., Zha T. 2006. Does Monetary Policy Generate Recessions? Macroeconomic Dynamics, 10: 231-272.
Taylor J.B. 1996. How Should Monetary Policy Respond to Shocks While Maintaining Long-Run Price Stability? - Conceptual Issues. Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City.
Thomas C. 2008. Search and matching frictions and optimal monetary policy. Journal of Monetary Economics, 55(5): 936-956.
Uhlig H. 2005. What are the effects of monetary policy on output? Results from an agnostic identification procedure. Journal of Monetary Economics, 52: 381-419.
Vonnak B. 2006. The Hungarian monetary transmission mechanism: an assessment. In: Monetary transmission in Hungary. Ed. B. Vonnak. Magyar Nemzeti Bank, Budapest.
Włodarczyk P. 2017. A change in volatility or an asymmetry: monetary transmission mechanism in the small open European economies during the crisis. Work in progress.
Wróbel E., Pawłowska M. 2002. Monetary transmission in Poland: some evidence on interest rate and credit channels. Materials and Studies, National Bank of Poland, Paper No. 24.
Anzuini A., Levy A. 2007. Monetary policy shocks in the new EU members: a VAR approach. Applied Economics, 39(9): 1147-1161.
Arestis P., Sawyer M. 1998. New labour, new monetarism. Soundings, 9: 24-41.
Arestis P., Sawyer M. 2011. A new paradigm for macroeconomic policy. International Journal of Public Policy, 7(1-3): 22-39.
Arestis P., Sawyer M. 2012. The 'new economics' and policies for financial stability. International Review of Applied Economics, 26(2): 147-160.
Arseneau D.M., Hugh S.K. 2008. Optimal fiscal and monetary policy with costly wage bargaining. Journal of Monetary Economics, 55(8): 1401-1414.
Bernanke B.S., Blinder A.S. 1992. The Federal Funds Rate and the Channels of Monetary Transmission. The American Economic Review, 82(4): 901-921.
Bernanke B.S., Mihov I. 1998. Measuring Monetary Policy. Quarterly Journal of Economics, 113(3): 869-902.
Blanchard O.J., Gali J. 2010. Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment. American Economic Journal: Macroeconomics, 2(2): 1-30.
Blanchard O.J., Quah D. 1989. The Dynamic Effects of Aggregate Demand and Supply Disturbances. The American Economic Review, 79(4): 655- 673.
Boschen J.F., Mills L.O. 1995. Tests of Long-Run Neutrality Using Permanent Monetary and Real Shocks. Journal of Monetary Economics, 35(1): 25-44.
Boyarchenko N., HaddadV., PlosserM.C. 2016. The Federal Reserve and Market Confidence. Federal Reserve Bank of New York Staff Reports 773.
Bullard J., Keating J.W. 1995. The Long-Run Relationship between Inflation and Output in Postwar Economies. Journal of Monetary Economics, 36(3): 477- 496.
Christiano L.J., Eichenbaum M., Evans C.L. 1999. Monetary Policy Shocks: What Have We Learned and to What End? In: Handbook of Macroeconomics. Vol. 1. Eds. J.B. Taylor, M. Woodford. North-Holland, Amsterdam.
Christiano L.J., Eichenbaum M., Evans C.L. 2005. Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy. Journal of Political Economy, 113(1): 1-45.
Christiano L.J., Trabandt M., Walentin K. 2011. DSGE Models for Monetary Policy Analysis. In: Handbooks in Economics. Monetary Economics. Vol. 3A. Eds. B.M. Friedman, M. Woodford. North-Holland, Amsterdam, San Diego, CA.
Darvas Z. 2013. Monetary transmission in three central European economies: evidence from time-varying coefficient vector autoregressions. Empirica, 40(2): 363-390.
Elbourne A., De HAAN J. 2009. Modeling Monetary Policy Transmission in Acceding Countries: Vector Autoregression Versus Structural Vector Autoregression. Emerging Markets Finance and Trade, 45(2): 4-20.
Faust J. 1998. The robustness of identified VAR conclusions about money. Carnegie-Rochester Series on Public Policy, 49: 207-244.
Fisher I. 1922. The Purchasing Power of Money. The McMillan Co., New York.
Forder J. 2014. Macroeconomics and the Phillips Curve Myth. Oxford University Press, Oxford.
Gali J. 2011a. Monetary Policy and Unemployment. In: Handbooks in Economics. Monetary Economics. Vol. 3A. Eds. B.M. Friedman, M. Woodford. North-Holland, Amsterdam, San Diego, CA.
Gali J. 2011b. The Return of Wage Phillips Curve. Journal of the European Economic Association, 9(3): 436- 461.
Górajski M., Ulrichs M. 2016. Optymalne wrażliwe na ryzyko strategie polityki pieniężnej dla Polski. Bank i Kredyt, 47(1): 1-32.
Hubrich K., Tetlow R.J. 2015. Financial stress and economic dynamics: The transmission of crises. Journal of Monetary Economics, 70: 100-115.
Jarociński M. 2010. Responses to Monetary Policy Shocks in the East and the West of Europe: A Comparison. Journal of Applied Econometrics, 25(5): 833-868.
Kapuściński M., Łyziak T., Przystupa J., Stanisławska E., Sznajderska A., Wróbel E. 2014. Mechanizm transmisji polityki pieniężnej w Polsce. Co wiemy w 2013 roku? Materiały i Studia NBP, 306.
Kapuścińskim., Kocięcki A., Kowalczyk H., Łyziak T., Przystupa J., Stanisławska E., Sznajderska A., Wróbel E. 2016. Mechanizm transmisji polityki pieniężnej w Polsce. Co wiemy w 2015 roku? Materiały i Studia NBP, 323.
Keynes J.M. 1964. The General Theory of Employment, Interest and Money. Harcourt, Brace, Jovanovich, San Diego.
Kim S., Roubini N. 2000. Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach. Journal of Monetary Economics, 45(3): 561- 586.
King R.G., Watson M.W. 1997. Testing Long-Run Neutrality. Federal Reserve Bank of Richmond Economic Quarterly, 83(3): 69-101.
Lucas R.E. Jr. 1972. Expectations and the Neutrality of Money. Journal of Economic Theory, 4(2): 102-124.
McCallum B.T., Nelson E. 2011. Money and Inflation: Some Critical Issues. In: Handbooks in Economics. Monetary Economics. Vol. 3A. Eds. B.M. Friedman, M. Woodford. North-Holland, Amsterdam, San Diego, CA.
McCandless G.T. JR., Weber W.E. 1995. Some Monetary Facts. Federal Reserve Bank of Minneapolis Quarterly Review, 19(3): 2-11.
Nalban V. 2016. Sentiment-Driven Asymmetries in Romanian Monetary Policy Transmission. Eastern European Economics, 54: 251-270.
Palley T.I. 2011. Quantitative easing: a Keynesian critique. Investigación económica, 70(277): 69-86.
Peersman G, Smets F. 2001. The monetary transmission mechanism in the euro area: more evidence from VAR analysis. European Central Bank Working Paper Series, 91.
Phillips A.W. 1958. The relation between unemployment and the rate of change of money wage in the United Kingdom, 1861-1957. Econometrica, 25(100): 283-299.
Sargent T.J., Wallace N. 1975. Rational Expectations, the Optimal Monetary Instrument, and the Optimal Monetary Supply Rule. Journal of Political Economy, 83(2): 241-254.
Sargent T.J., Wallace N. 1976. Rational Expectations and the Theory of Economic Policy. Journal of Monetary Economics, 2(2): 169 -183.
Sims C.A. 1972. Money, Income and Causality. American Economic Review, 62(4): 540-552.
Sims C.A. 1980. Comparison of Interwar and Postwar Business Cycles. American Economic Review, 70(2): 250-257.
Sims C.A. 1986. Are Forecasting Models Usable for Policy Analysis? Federal Reserve Bank of Minneapolis Quarterly Review, 10(1): 2- 16.
Sims C.A., Wagonner D.F., Zha T. 2008. Methods for inference in large multiple-equation Markov-switching models. Journal of Econometrics, 146: 255-274.
Sims C.A., Zha T. 2006. Does Monetary Policy Generate Recessions? Macroeconomic Dynamics, 10: 231-272.
Taylor J.B. 1996. How Should Monetary Policy Respond to Shocks While Maintaining Long-Run Price Stability? - Conceptual Issues. Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City.
Thomas C. 2008. Search and matching frictions and optimal monetary policy. Journal of Monetary Economics, 55(5): 936-956.
Uhlig H. 2005. What are the effects of monetary policy on output? Results from an agnostic identification procedure. Journal of Monetary Economics, 52: 381-419.
Vonnak B. 2006. The Hungarian monetary transmission mechanism: an assessment. In: Monetary transmission in Hungary. Ed. B. Vonnak. Magyar Nemzeti Bank, Budapest.
Włodarczyk P. 2017. A change in volatility or an asymmetry: monetary transmission mechanism in the small open European economies during the crisis. Work in progress.
Wróbel E., Pawłowska M. 2002. Monetary transmission in Poland: some evidence on interest rate and credit channels. Materials and Studies, National Bank of Poland, Paper No. 24.
Włodarczyk, P. (2017). Monetary Policy Transmission to the Labour Market – Evidence From the Polish Economy. Olsztyn Economic Journal, 12(3), 321–335. https://doi.org/10.31648/oej.2814
Przemysław Włodarczyk
Department of Macroeconomics, Faculty of Economics and Sociology, University of Lodz
Department of Macroeconomics, Faculty of Economics and Sociology, University of Lodz
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