The author models the mechanisms determining the monetary authorities' exchange rate policy decisions in the period 1992-98 by applying a cointegration procedure to quantify long- and short-term relationships. It is assumed that those decisions in the long run complied with the theory of purchasing power parity, and any deviations observed resulted from flows of long-term and speculative capital. With respect to the short term, the author has sought to verify the assumption of the anti-inflationary character of exchange rate policy of that period. The paper focuses on an econometric analysis of the zloty exchange rate profile and its smoothness of adjustment to the long-term path.

The point of departure for the proposed method of modelling short-run relationships is the reduced Vector Error Correction (VEC) model. To construct it, leading structural cointegration vectors have to be selected. In the model, short-term fluctuations of the chosen variables occur around long-term equilibrium paths determined for each of them. However, establishing the leading vectors may not be enough to structure the short-term feedback, possibly essential when time series considered are short. The author's solution to the problem is to skip the transition from the reduced to the structural form of the VEC model by estimating model parameters directly with autoregressive lag distributions in which the estimations of the component structural cointegration vectors have been incorporated.