From r* to the Optimal Policy Rate: Identifying a Time-Varying Forward-Looking Taylor Rule for the National Bank of Poland

Aim: This paper identifies a forward-looking Taylor-type rule with time-varying coefficients for Poland and derives the implied optimal policy-rate path for the National Bank of Poland over the period 2010-2024. It assesses how expectations, a time-varying neutral rate, and parameter recalibration alter the evaluation of monetary stance relative to a constant-parameter benchmark. Methodology: A New Keynesian-structured Bayesian SVAR was estimated on quarterly data, and conditional forecasts were used to obtain expected inflation and the expected output gap. The optimal policy-rate path and rule coefficients were recovered through constrained numerical optimisation under the effective lower bound by minimising the Equilibrium Monetary Policy Gap (EMPG), defined as the squared deviation of the policy rate from the neutral interest rate. Results: The forward-looking time-varying rule generated a substantially lower EMPG than the classic Taylor rule and indicated a marked divergence after 2022 between the conventional interest-rate gap and the broader monetary policy gap. Implications and recommendations: Static Taylor rules may misstate the policy stance when the neutral rate and reaction coefficients change over time. Originality/value: The paper provides novel evidence for Poland by jointly combining a forward-looking Taylor-rule framework, time-varying parameters, and an explicit neutral-rate benchmark within a New Keynesian BSVAR model.