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Implications of Erm2 for Poland's Monetary Policy

Posted: 13 Dec 2006  

Lucjan T. Orlowski

Sacred Heart University - John F. Welch College of Business

Krzysztof I. Rybinski

Narxoz University

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We propose an extension to the inflation targeting regime currently pursued by Poland. It incorporates the exchange rate stability constraints as imposed by the obligatory participation in the ERM2 that Poland needs to satisfy prior to adopting the euro. The modified policy is based on the forward-looking inflation targeting supplemented with the exchange rate stability objective. Its effective implementation depends on the determined long-term equilibrium exchange rate and the observed degree of exchange rate volatility. Both are empirically estimated by employing the Johansen cointegration tests and the threshold generalized autoregressive heteroscedasticity model with the in-mean extension and generalized error distribution (TGARCH-M-GED).

Keywords: Inflation targeting, Monetary convergence, ERM2, Euro, Poland, Cointegration, GARCH

JEL Classification: E58, E61, F33, P24

Suggested Citation

Orlowski, Lucjan T. and Rybinski, Krzysztof I., Implications of Erm2 for Poland's Monetary Policy. Economic Systems, Vol. 30, No. 4, pp. 346-365, December 2006. Available at SSRN:

Lucjan Orlowski (Contact Author)

Sacred Heart University - John F. Welch College of Business ( email )

5151 Park Avenue
Fairfield, CT 06825
United States
203-371-7858 (Phone)


Krzysztof Rybinski

Narxoz University ( email )

Zhandosova 55

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