Money in Monetary Policy: Information Variable? Channel of Monetary Transmission? What is its Role in Poland?

Abstract

The paper provides an overview of the literature on the role of monetary aggregates for conducting monetary policy and attempts to assess the role of these aggregates in the Polish monetary policy.We compare theoretical and empirical arguments which justify or undermine the need for usage of monetary aggregates by central banks, as well as arguments indicating related problems. We describe the most important areas of the discussion on the role of money in monetary policy. We present studies on the information content of money and the use of that information in the Polish central bank's monetary policy between 1998 and 2011.Keynesian economics (new neoclassical synthesis), which dominates economic theory for about 20 years, largely disregards money in macroeconomic models and in recommendations for the monetary policy. This is also reflected in the practice of modern central banking.The current financial crisis has caused a return to discussions on the role of money in monetary policy. It is worth emphasizing that, contrary to the debate during the monetarist revolution, the present one concerns not only monetary aggregates, classified according to the degree of liquidity of their components on the liability side as M1, M2 or M3, but is also, if not primarily, focused on the asset side. In particular, it emphasizes the role of credit, and even liquidity in general because of the confidence crisis after the collapse of Lehman Brothers in 2008 and the application of nonstandard monetary policy measures by some central banks, e.g. purchase of public and private sector assets (the so-called quantitative easing).It is theoretically justified to concentrate on credit aggregates and not on monetary aggregates. The definition of money in categories of M1, M2 and M3 aggregates causes a number of problems. Firstly, money in the theoretical sense, in accordance with quantity theory of money, is directly connected with nominal income and production, therefore a statistical measure of this category should refer not to the volume of (specified) deposits, but to their part, which translates into demand in real terms. Secondly, the definition of money in categories of private sector assets leads to classification problems, such as which assets