Measuring monetary conditions in Europe: Use and limitations of the monetary conditions index
AbstractThe monetary conditions index is a composite index of interest and exchange rates frequently used by central banks, the International Monetary Fund, and the Organisation for Economic Cooperation and Development. This paper considers the benefits and weaknesses of the monetary conditions index in the light of large macroeconometric models. It follows that the impact of the exchange rate on gross domestic product relative to the impact of the short-term interest rate is substantially lower under a monetary union. For most countries, including a long-term interest rate only affects the level of the monetary conditions index and not its turning points.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 23534.
Date of creation: 1999
Date of revision:
monetary conditions; exchange rates; interest rates; monetary policy; macroeconometric model;
Find related papers by JEL classification:
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
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