The paper looks into the problem of monetary neutrality within the contemporary system of credit money. It sums up existing knowledge of the subject and presents current and expected changes to the manner in which the central bank executes its monetary policy. The role of high-powered money in modern economies diminishes, thus limiting the monetary authorities´ scope for the control of money supply. The author therefore proposes that research carried out for the benefit of the central bank should focus on the degree of interest rate neutrality rather than monetary neutrality, as interest rates are the key instrument of monetary policy for most central banks.

The theory part of the paper is followed by the analysis of the impact and permanence of monetary transmission in Poland. This is done through standard VAR models. When data is adjusted for the specific features of a transition economy, the impulse response function of industrial output to a short-term interest shock assumes a shape close to that typical for a developed country.

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