Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: We seek to test the hypothesis that the weight on output gap variability in the central bank’s loss function is equal to zero in Poland. To that end we derive monetary policy reaction function from the central bank’s optimization problem. We find that the weights assigned to target variables were not constant over the period 1995-2003. The weight attached to inflation stabilization objective in the central bank’s loss function in Poland was equal to the weight assigned to output gap stabilization in the period 1995-1999 and the latter goal has been disregarded since 2000.

Keywords: Monetary policy reaction function; central bank’s loss function; New Keynesian Phillips curve

JEL-codes: E52; E58; P24

17 pages, August 9, 2004

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