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...ratio of 4.40% in 2003 was little higher than the 3.0% EU criterion. The government debt/GDP ratio rose from a low of 37.43% in 2000 to 48.06% in 2003, which is lower than the Maastricht criterion of 60.0%. The money market rate has been on the decline from 18.16% in 2000 to 5.76% in 2003. The lending rate also dropped from 20.01% in 2000 to 7.30% in 2003. The zloty has become weaker as the nominal exchange rate rose from 3.6685 to 4.3978 zlotys per euro dollar during 2001-2003. The growth rate of real GDP reached 3.77% in 2003.
The IMF (2004) assessed the Polish economy and made several recommendations: Poland needs to continue to engage in fiscal reform, reduce spending on social welfare, target welfare spending to the poor, expand the government tax base, reduce the ratio of government deficit to output by two percentage points in three years, limit the ratio of debt to output to below 60%, oversee the financial institution to raise its debt rating, privatize public-run enterprises, pursue inflation targeting to enhance credibility, keep the flexibility of the exchange rate in order to adjust to unexpected shocks, among others.
There are several recent studies on Poland and some of the neighboring countries. Sachs (1992) indicated that during the process of stabilization, privatization, and trade liberalization, special interest groups emerged to slow down the reform and requested government subsidies and fewer restrictions in the financial sector. Rubaszek (2004) estimated that the zloty was 10% to 15% above the fair market value during 2000-2001, depreciated significantly in 2002, and returned to the fair market value at present. Creel and Levasseur (2004) showed that the adoption of the euro would be more beneficial to the Czech Republic and Hungary than Poland and that changes in the nominal exchange rate affected the real effective exchange rate. Borowski (2004) estimated that if Poland adopts the euro, the overall net impact would be to raise real per capita GDP by 4% to 7% over the long run. Havrylchyk (2004) found that bank mergers in Poland led to more profits and better returns but it is not clear whether bank mergers resulted in more efficiency and that bank acquisitions did not do as well partly attributable to the motive of gaining more market power. Flores and Szafarz (1997) reported that movements in stock values at the Warsaw Stock Exchange did not reflect macroeconomic fundamentals such as the CPI, the exchange rate, and the refinancing rate.
Examining Polish macroeconomic policies is important because of its leading role in the transition to a market economy. In assessing their own economic policies, other countries in the region are expected to consider Poland's empirical results. This paper attempts to examine short-term output fluctuations for Poland based on an extended IS-MP-AS model (Romer, 2000) and Taylor rule (1993, 1998, 1999). To the author's knowledge, none of the previous studies has employed this model to analyze major macroeconomic relationships for Poland. This paper uses a general equilibrium approach to...
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