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Estimation of weights for the Monetary Conditions Index in Poland


  • Andrzej Toroj

    () (Warsaw School of Economics, National Bank of Poland)


In this paper, we follow the econometric approach to assess relative importance of real interest rate and real exchange rate for the monetary conditions in Poland, quantified as weights for Monetary Conditions Index (MCI). We consider both single- and multiple-equation specifications proposed in the literature with an application to Poland. Although MCI is nowadays broadly considered a rather obsolete indicator in monetary policy conduct, we argue that the econometric framework used for this purpose could be a good departure point when modelling monetary adjustments in a monetary union, provided correct dynamic specification of the models.

Suggested Citation

  • Andrzej Toroj, 2008. "Estimation of weights for the Monetary Conditions Index in Poland," Working Papers 27, Department of Applied Econometrics, Warsaw School of Economics.
  • Handle: RePEc:wse:wpaper:27

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    References listed on IDEAS

    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 765-790, November.
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    3. Mayes, David G. & Viren , Matti, 2002. "Financial Conditions Indexes," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 55(4), pages 521-550.
    4. Gottschalk, Jan, 2001. "Monetary Conditions in the Euro Area: Useful Indicators of Aggregate Demand Conditions?," Kiel Working Papers 1037, Kiel Institute for the World Economy (IfW).
    5. Gerlach, Stefan & Smets, Frank, 2000. "MCIs and monetary policy," European Economic Review, Elsevier, vol. 44(9), pages 1677-1700, October.
    6. Benati, Luca, 2008. "Investigating inflation persistence across monetary regimes," Working Paper Series 851, European Central Bank.
    7. von Hagen, Jurgen & Hofmann, Boris, 2004. "Macroeconomic implications of low inflation in the euro area," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 5-23, March.
    8. Charles Freedman, 1995. "The role of monetary conditions and the monetary conditions index in the conduct of policy [speech]," Bank of Canada Review, Bank of Canada, vol. 1995(Autumn), pages 53-59.
    9. Grande, Giuseppe, 1997. "Properties of the monetary conditions index," MPRA Paper 23515, University Library of Munich, Germany.
    10. Luca Benati, 2008. "Investigating Inflation Persistence Across Monetary Regimes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(3), pages 1005-1060.
    11. Brisne J. V. Céspedes & Elcyon C. R. Lima & Alexis Maka & Mário J. C. Mendonça, 2005. "Measuring Monetary Policy Stance in Brazil," Discussion Papers 1128, Instituto de Pesquisa Econômica Aplicada - IPEA.
    12. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001. "One decade of inflation targeting in the world : What do we know and what do we need to know?," Working Papers Central Bank of Chile 101, Central Bank of Chile.
    13. Andreas Fischer & Adrian Orr, 1994. "The Determinants and Properties of Monetary Conditions: Direct Survey Evidence from New Zealand," OECD Economics Department Working Papers 150, OECD Publishing.
    14. Siklos, Pierre L, 2000. "Is the MCI a Useful Signal of Monetary Policy Conditions? An Empirical Investigation," International Finance, Wiley Blackwell, vol. 3(3), pages 413-437, November.
    15. Tor Jacobson & Per Jansson & Anders Vredin & Anders Warne, 2001. "Monetary policy analysis and inflation targeting in a small open economy: a VAR approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(4), pages 487-520.
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    Cited by:

    1. Andrzej Toroj, 2011. "Competitiveness channel in Poland and Slovakia: a pre-EMU DSGE analysis," NBP Working Papers 86, Narodowy Bank Polski, Economic Research Department.
    2. Van Vliet, Olaf & Been, Jim & Caminada, Koen & Goudswaard, Kees, 2011. "Pension reform and income inequality among the elderly in 15 European countries," MPRA Paper 32940, University Library of Munich, Germany.

    More about this item


    Monetary Conditions Index; MCI-ratio; IS curve; Phillips curve; VAR.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other

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