Peeters, Marga (1999) Measuring monetary conditions in Europe: use and limitations of the monetary conditions index. MRPA Paper No. 23534, 1999. UNSPECIFIED.
The Monetary Conditions Index is a composite index of interest and exchange rates frequently used by central banks, the IMF, and the OECD. This paper considers the benefits and weaknesses of the MCI in the light of large macroeconometric models. It follows that the impact of the exchange rate on GDP 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 in the MCI only affects the level of the MCI and not its turning points.
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