An indicator of monetary bias for emerging and dollarized economies The case of Uruguay

Conrado Brum Civelli () and Alfredo Garcia-Hiernaux
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Conrado Brum Civelli: Banco Central del Uruguay

No 2020007, Documentos de trabajo from Banco Central del Uruguay

Abstract: The instability of the relationships between interest rates, amount of money, and exchange rate, and the transmission problems between different interest rates hinder the measurement of monetary policy through a single variable. This difficulty is particularly relevant in emerging and dollarized economies. This paper proposes a multivariate indicator of monetary bias for these economies in which the monetary and financial variables are considered according to the impact they have on inflation in each period. We analyze the case of Uruguay and use a Factor Augmented Vector Autoregressive Moving Average model with exogenous variables (FAVARMAX) to estimate these effects. Using the evolution of the indicator proposed, called the Monetary Conditions Index (MCI), we characterize the policy adopted by the Central Bank of Uruguay between 2010-2019, a period of inflation targeting.

Keywords: monetary policy bias; multivariate Indicator; Inflation; FAVARMAX (search for similar items in EconPapers)
JEL-codes: C32 E31 E52 E58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bku:doctra:2020007

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