Monetary Policy Transmission Disturbances During the Financial Crisis

The aim of this paper is to show the implications of the current financial crisis for the monetary transmission mechanism (MTM) and its effectiveness in Poland, which is an inflation-targeting emerging market economy. MTM depends on monetary policy, but also on structural features of the economy. Financial crisis can affect both. Our results based on Polish data suggest a change in the monetary policy rule and a significant drop in overall monetary policy effectiveness. Unlike disturbances in the interest rate pass-through, which reflect an increased perception of risk and result from the financial crisis, the more pronounced role of credit market imperfections and the weakening of the exchange rate channel can be viewed as typical phenomena in the current phase of the business cycle. However, the magnitude of the crisis, the likely changes in the regulatory framework, and adjustments in macroeconomic policies can result in the deeper evolution of the MTM.