The Exchange Rate and Two Price Inflations in Poland in the Period 1999-2009. Do Globalization and Balassa-Samuelson Effect Matter?

The abrupt depreciation of the zloty during the subprime crisis and fast-rising prices are serious problems, because Poland, having to fulfil five Maastricht criteria, makes the dependence of her domestic inflation on price increases in the EU countries the central point of the discussion about the optimal monetary and fiscal policy rules for the next few years. The primary objective of the paper is to test out some hypotheses about the main sources of the volatility of the Polish zloty / euro exchange rate and inflation in Poland. Because several competing theoretical models describing inflationary processes are widely used, special attention is paid to their empirical verification. The working-hypotheses allowing for the country-specific features of the consumer and producer price inflation are formulated and verified in the paper.