MEASURING MONETARY POLICY IN EMERGING ECONOMY: THE ROLE OF MONETARY CONDITION INDEX

• Authors: Thanh Trung Bui
• Languages of publication: EN

Abstracts

EN

Measuring the stance of monetary policy is of importance for the analysis and implementation of monetary policy. In emerging economies, the popular use of multiple instrument framework as well as the significance of interest rate channel and exchange rate channel implies that monetary condition index (MCI) can play an important role in evaluating the timing of tightening or loosing monetary policy. In this paper, we aim to evaluate the role of MCI as an overall measure of monetary policy in emerging economy that follow inflation targeting by using the VAR model. The weight of MCI components, exchange rate and interest rate, is derived from the inflation equation in the VAR model. It shows that exchange rate plays a significant role but its weight is less than that of interest rate in most emerging economies. Furthermore, the empirical results show that inflation shows a reduction after a contractionary shock of monetary policy in most emerging economies. The finding implies that MCI is a useful indicator that can predict changes in the stance of monetary policy and the trend in inflation.

Keywords

EN

MONETARY CONDITION INDEX; MONETARY POLICY; EMERGING ECONOMIES

• Publisher: Institute of Slovak and World Economics and Institute for Forecasting, Slovak Academy of Sciences
• Journal: Ekonomický časopis (Journal of Economics)
• Year: 2022
• Volume: 70
• Issue: 6
• Pages: 499 – 522

Contributors

author

Thanh Trung Bui

• University of Szeged, Faculty of Economics and Business Administration, Kálvária sugárút 1, 6722 Szeged, Hungary

Identifiers

DOI

https://doi.org/10.31577/ekoncas.2022.06.02