The Role of the Monetary Policy Stance for the Goverment Spending Multiplier in Poland ​

Abstract

We empirically explore monetary and fiscal policy coordination in Poland. In particular, we study whether the empirical effects of a government spending shock on output depend on the stance of monetary policy. We find no such dependency and conclude after various sensitivity checks, including to slack in the economy, that the government spending multiplier is not dependent on monetary policy or the business cycle. The cumulative multiplier reaches a peak value of 1.11 one year after a government spending shock: a 1 złoty increase in government spending, be it government consumption purchases or government investment or any combination of both, increases real GDP by 1.11 złoty. We identify a crowding-out effect of private investment, but it is relatively small and the overall impact of the government investment shock on GDP is above unity