From r* to monetary policy stance: Evidence from Poland

Abstract

This paper estimates Poland’s time-varying natural real interest rate and natural-rate gap over 2010Q1–2025Q1 and examines how a natural-rate-gap innovation propagates in a Structural Vector Error Correction (SVEC) framework. The measurement stage uses a Laubach-Williams-type state-space model disciplined by an ex ante real policy rate constructed from survey-based inflation expectations. The transmission stage embeds the estimated gap in a cointegrated macro-financial system covering activity, inflation, the real effective exchange rate, the term spread, debt-service costs and the natural-rate gap, with domestic and external controls. The estimated natural rate declines around the pandemic period and rises sharply during the post-pandemic tightening episode. Robustness analysis based on alternative expectations measures, GDP/GVA activity indicators, moderate calibration variants and one-sided filtering preserves the main cyclical profile, while highly flexible natural-rate specifications behave as diagnostic stress tests. SVEC results indicate bounded and weakly estimated transmission: statistically informative responses are sparse, CPI provides the clearest limited nominal evidence, and forecast-error-variance contributions remain small for most macro-financial variables. The natural-rate gap is therefore informative for monetary-stance assessment, but not a standalone explanation of Polish macroeconomic fluctuations.