Monetary policy in steering the EONIA and POLONIA rates in the Eurosystem and Poland: a comparative analysis.

The effectiveness of the monetary policies of the European Central Bank (ECB) and the Narodowy Bank Polski (NBP) is compared directly in terms of influencing the spread between the interbank overnight rate and the main rates of the central banks during periods of different economic conditions, i.e. the global financial crisis of 2008, the European sovereign debt crisis and the period of relative stability. Three categories of determinants of the Euro Overnight Index Average/Polish Overnight Index Average (EONIA/POLONIA) spreads are considered: (1) monetary policy instruments such as open market operations, standing facilities and minimum reserve requirements; (2) measures of liquidity conditions; and (3) market expectations and risk measures. Applying the ARFIMA-GARCH models, we show that the statistical and economic properties of the EONIA and POLONIA spreads are quite different. The EONIA spread has a long memory while the POLONIA spread is characterized by a short memory. This difference is important from the viewpoint of a stabilizing monetary policy. The impact of shocks on the future levels of the spread was stronger for the POLONIA spread, but it was short-lived in comparison with the EONIA spread. Most of the analysed variables significantly influenced the spreads during the financial crisis, while the biggest differences in the impact of determinants between the EONIA and POLONIA spreads occurred during the period of relative stability. Substantial differences also exist between the volatilities of both spreads. [ABSTRACT FROM AUTHOR]