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Measuring monetary conditions in Europe: Use and limitations of the monetary conditions index

  • Peeters, Marga

The 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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23534.

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Date of creation: 1999
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Handle: RePEc:pra:mprapa:23534
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  1. Eika, Kari H & Ericsson, Neil R & Nymoen, Ragnar, 1996. "Hazards in Implementing a Monetary Conditions Index," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 765-90, November.
  2. Richard Dennis, 1997. "A measure of monetary conditions," Reserve Bank of New Zealand Discussion Paper Series G97/1, Reserve Bank of New Zealand.
  3. Grande, Giuseppe, 1997. "Properties of the monetary conditions index," MPRA Paper 23515, University Library of Munich, Germany.
  4. Duguay, Pierre, 1994. "Empirical evidence on the strength of the monetary transmission mechanism in Canada: An aggregate approach," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 39-61, February.
  5. Mayes, David G. & Razzak, W. A., 1998. "Transparency and accountability: Empirical models and policy making at the Reserve Bank of New Zealand," Economic Modelling, Elsevier, vol. 15(3), pages 377-394, July.
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