Public debt financing: the impact of the monetary policy on bond market investors

Abstract

The aim of the article is to present the impact of the monetary policy of the National Bank of Poland, implemented in response to the pandemic crisis (the catalogue of unconventional instruments), as well as during a period of increased inflation on investors in the bond market. The analysis will encompass the characteristics of the debt market that are relevant to investors, that is the supply of new issuances, yield levels, and regulatory requirements. The point of reference is the capital flow in terms of the changing with time structure of buyers resulting from the observed changes in the studied characteristics. The assessment of monetary policy actions, in particular, including unconventional instruments, and the response to significant inflation growth contributes to the theoretical interpretation of the consequences of these actions, which are undertaken in the current mainstream economics and interpreted in heterodox theories like the modern monetary theory. The author maintains that the analysis of the consequences of using unconventional monetary policy instruments and the impact of monetary policy during periods of inflationary shocks in the debt market is an important element of the public debt management strategy, which is a component of a stable economic policy for the state. The recommendations formulated in the article concern both the monetary and fiscal policy, as well as financial safety nets. They apply separately to the period of using unconventional instruments and the period of inflation shocks.