Analyzing the correlation between central bank interest rates and inflation on the example of Poland within the European Union

Abstract

PURPOSE: The main aim of this study was to determine the relationship between inflation and interest rates of the Central Bank in Poland with the background of European integration and the COVID-19 pandemic.

DESIGN/METHODOLOGY/APPROACH: The Central Bank of Poland (CBP) was the main source of data for the analysis (1998-2023). We used different methods which helped to analyze the changes in inflation and interest rates in Poland, for example Augmented Dickey Fuller test (ADF test), Autoregressive Moving Average model (ARIMA model) and the regression analysis using the Classical Method of Least Square.

FINDINGS: The study demonstrated that inflation will decrease steadily in Poland due to relatively high interest rates. The Central Bank of Poland and government agencies should implement cohesive policies to reduce inflation. The Central Bank of Poland has increased interest rates to fight inflation, whereas the wide range of social welfare programs introduced by the government has contributed to higher inflation.

PRACTICAL IMPLICATIONS: The results will fill in the gap concerning the financial policy of Central Bank.

ORIGINALITY/VALUE: The new information about impact of interest rate on inflation and a ARiMA model was presented.