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Augmented MCi: AN Indicator Of Monetary Policy Stance For ASEAN-5?

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  • Wai Ching Poon

Abstract

This paper uses quarterly data from 1980 to 2004 for ASEAN-5 founder countries to estimate the weight of the Augmented Monetary Conditions Index (AMCI), and identifies the key transmission mechanism paths using Pesaran and Pesaran’s (1997) ARDL procedure, and Pesaran et al.’s (2001) bounds procedure. The roles of credit and asset price channels are assessed for aggregate demand conditions and in the transmission of monetary policy. Results reveal evidence of cointegration for all the ASEAN-Five founder countries. The estimate of the interest and exchange rate elasticities of aggregate demand is used to determine the weight of the exchange rate in the AMCI, and ultimately the weight is then used to construct the AMCI ratio. Exchange rate, asset price, and interest rate channels are three key transmission mechanisms in the conduct of monetary policy in Indonesia and Thailand. Meanwhile in Malaysia and Singapore, exchange rate, both the long and short term interest rate, and credit channels are three key transmission mechanisms in the conduct of monetary policy. In the Philippines, four key transmission mechanisms take place, namely the interest rate, exchange rate, credit, and asset price channels, with short rate relatively weaker than the long rate at the margin. The estimated weights of real interest rates and real exchange rate are used to estimate the AMCI ratios. The AMCI ratios range from 0.052 to 0.664 [0.052:1 for Philippines, 0.056:1 for Thailand, 0.073:1 for Indonesia, 0.109:1 for Malaysia; and 0.664 for Singapore]. Monetary conditions during the period under-study are found to be reflected in each of the central banks’ reaction to the prevailing economic situation, which implies that AMCI tracks the movements of the real GDP plausibly on the average, particularly after 1997.

Suggested Citation

  • Wai Ching Poon, 2010. "Augmented MCi: AN Indicator Of Monetary Policy Stance For ASEAN-5?," Monash Economics Working Papers 25-10, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2010-25
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2010/2510augmentedpoon.pdf
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    Cited by:

    1. Margarita Debuque-Gonzales & Maria Socorro Gochoco-Bautista, 2017. "Financial Conditions Indexes and Monetary Policy in Asia," Asian Economic Papers, MIT Press, vol. 16(2), pages 83-117, Summer.
    2. Coşkun Akdeniz, 2021. "Construction of the Monetary Conditions Index with TVP-VAR Model: Empirical Evidence for Turkish Economy," Springer Books, in: Burcu Adıgüzel Mercangöz (ed.), Handbook of Research on Emerging Theories, Models, and Applications of Financial Econometrics, edition 1, pages 215-228, Springer.
    3. Yunus AÇCI, & Izzet TASAR, 2016. "An Analysis On Monetary Condition Index In Turkey By Using Structural Var Analysis," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 5(2), pages 1-14, July.

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    More about this item

    Keywords

    Augmented Monetary Conditions Index; monetary policy; transmission mechanism;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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