Ali M. Kutan Orlowski reviews Poland’s monetary and ﬁscal policy since the beginning of reforms initiated in early 1990s. He covers macroeconomic stabilization policies and policy strategies for adopting the euro, which is oﬃcially planned for 2009, with a particular emphasis on the current inﬂation targeting regime. The chapter includes useful lessons for other transition economies, as well as those that are currently in the process of negotiations for full European Union (EU) membership, such as Turkey and Bulgaria. The key conclusions and recommendations of the paper can be summarized as follows: (1) (2) Disciplined and eﬀective coordination of monetary and ﬁscal policies are critical for Poland’s timely adoption of the euro. Polish ﬁscal authorities face many challenges, including tax reforms, reducing the amount of future social transfers and public administration expenses, and pressures on the budget associated with an ageing population. Without ﬁscal discipline and sustainability, it would be hard to tackle these challenges eﬀectively. In terms of monetary policy, the existing direct inﬂation targeting regime needs to be relaxed by allowing a reduction in the exchange rate risk premium within the Exchange Rate Mechanism (ERM) II through foreign exchange market interventions. A relative inﬂation forecast targeting policy that is based on adjusting the diﬀerential between domestic and euro zone interest rates should instead be adopted. However, the central bank’s main goal should still be low inﬂation. A stable political environment, such as single-party government, ﬁght against corruption, and a minimum...
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