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Inter-forecast monetary policy implementation: fixed-instrument versus MCI-based strategies

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Abstract

Monetary policy authorities can adjust their instrument at any point in time to achieve their policy objective. In some countries, such as the United States and the United Kingdom, policymakers choose to usually make adjustments only after a formal medium-term inflation forecast. Other countries, like Canada and New Zealand, have used simple inter-forecast strategies to make further instrument adjustments given unexpected developments in the exchange rate. These alternative strategies may be usefully thought of as fixing or banding a measure of "monetary conditions" that is comprised of the exchange rate and a short-term interest rate that is closely linked to the policy instrument. Such measures have come to be referred to as Monetary Conditions Indices (MCI).

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  • Ben Hunt, 1999. "Inter-forecast monetary policy implementation: fixed-instrument versus MCI-based strategies," Reserve Bank of New Zealand Discussion Paper Series G99/1, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbdps:1999/01
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    1. Hunt, Benjamin & Rose, David & Scott, Alasdair, 2000. "The core model of the Reserve Bank of New Zealand's Forecasting and Policy System," Economic Modelling, Elsevier, vol. 17(2), pages 247-274, April.
    2. Aaron Drew, 2002. "Lessons from Inflation Targeting in New Zealand," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.),Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 12, pages 501-538, Central Bank of Chile.
    3. Orlowski, Lucjan T. & Rybinski, Krzysztof, 2006. "Implications of ERM2 for Poland's monetary policy," Economic Systems, Elsevier, vol. 30(4), pages 346-365, December.

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