This paper examines output fluctuations in Poland based on an extended IS-MP-AS model (Romer, 2000) and the Taylor rule (1993, 1998, 1999). Empirical results show that real output is negatively influenced by the expected inflation rate, the deficit/GDP ratio, and the euro interest rate while it is positively affected by real appreciation and stock prices. Policy implications are that expansionary fiscal policy would not generate expected outcomes and that the conventional approach of currency devaluation to stimulate the economy may not apply to Poland due to the National Bank of Poland's potential reaction to raise the interest rate.
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