Monetary conditions tightness indices for Russia

This paper develops a system for assessing the tightness of monetary conditions in Russia using monetary-conditions indices. These indices make it possible to study the pass-through of the monetary policy impulse across key channels of the transmission mechanism and to identify shocks to monetary conditions. Short-term money market rates, which are most sensitive to changes in the central bank’s policy rate, affect mediumand long-term rates to varying degrees. This heterogeneity is driven, among other factors, by expectations and sentiment of participants in financial and money markets, market volatility, fiscal policy, and external shocks. To trace the operation of the transmission mechanism, we construct indices based on a broad set of economic variables that characterize monetary conditions. The information set includes indicators reflecting price and non-price conditions, as well as survey-based measures—market participants’ assessments of current conditions. We build a system of indices to account for structural changes and to identify shocks to monetary conditions. The results align well with empirical patterns in historical data, indicating the feasibility of real-time monitoring of the tightness of monetary conditions and the impact of external shocks on their dynamics.