What Drives the POLONIA Spread in Poland?

August 1, 2012

Preview Citation

Format: Chicago

Yinqiu Lu. What Drives the POLONIA Spread in Poland?, (USA: International Monetary Fund, 2012) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Since the start of the 2008 - 09 financial crisis, the Polish Overnight Index Average (POLONIA) has persistently been below the policy rate, suggesting a limited influence of the NBP’s open market operations on the short-term interbank rate. In this regard, this paper analyzes the behavior of the POLONIA spread and explore several potential factors that could influence the spread. An empirical analysis confirms that the negative POLONIA spread is related to a few factors, which include the existence of the structural liquidity in the banking system; bank’s unwillingness to lock up liquidity in the NBP bills; the frontloading of banks’ fulfillment of the reserve requirements; and external market sentiment. The analysis also shows the effectiveness of the NBP’s responses to the financial crisis and structural liquidity surplus.

Subject: Asset and liability management, Banking, Central bank policy rate, Credit risk, Financial crises, Financial markets, Financial regulation and supervision, Financial services, Interbank markets, Liquidity

Keywords: Bank, Central bank policy rate, Credit risk, Fine-tuning operations, FX purchase, GARCH, Global, Interbank market, Interbank markets, Liquidity, Liquidity demand, Monetary policy, NBP bill, NBP's liquidity injection, Poland, POLONIA, Polonia rate, POLONIA spread, WP

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/215
Stock No:

WPIEA2012215
ISBN:

9781475505658
ISSN:

1018-5941

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