This paper provides the analysis of individual reaction functions of the Polish Monetary Policy Council members in the years 2004-2005. In the period under study the Polish central bank used the bias in the monetary policy as an indicator of future interest rate movements and a change of bias without any change in the short-term interest rate resulted in the shifts of the yield curve comparable to those which accompanied changes in the short-term interest rate. For that reason, as a monetary policy instrument in the reaction functions we used a qualitative variable which expresses the direction of change in the restrictiveness of the monetary policy proposed by the given member of the MPC (the change of bias and/or change of central bank short-term interest rate). Taking into account the qualitative nature of a dependent variable, in the analysis we employed an ordered logit model, where several variants of the reaction functions have been tested. Results of the research indicate that most of the Polish MPC members acted forward looking rather than backward looking. The classical Taylor's backward looking reaction function has not been confirmed by empirical data. Moreover, the substitution of a lagged inflation by future inflation improved the quality of all considered models. On the other hand, in the forward looking reaction function with the inflation expectations formulated for 12 months ahead the variable expressing the expectations has been significant in 6 out of 7 individual functions. The research has been completed by the sensitivity analysis of behaviour of the MPC members against the changes in the current and future inflation and changes in the output gap.

Keywords: monetary policy, policy rules, reaction function, ordered logit model.

  Jacek Kotłowski, Reaction functions of the Polish central bankers - a logit approach - plik pdf; (198 KB)