Different Interest Rates – Is It a Concern in Constructing Augmented Monetary Conditions Index?

Wai-Ching Poon

The IUP Journal of Applied Economics, 2014, vol. XIII, issue 1, 20-33

Abstract: This paper employs bounds test and Unrestricted Error-Correction Model (UECM) approach to construct the Augmented Monetary Conditions Index (AMCI) over the quarterly period 1981:1-2004:4 for Singapore and compares the discrepancies using two different interest rates (i.e., time deposit rate and interbank rate). Results from the bounds test approach reveal evidence of cointegration between the real GDP and its determinants, namely, the short- and long-term interest rate, the exchange rate, and the claims on private sectors, which account for the interest rate, exchange rate, and credit transmission mechanism channels in the conduct of the monetary policy stance. The study also evidently reveals that different interest rates yield marginal difference in AMCI. The construction of AMCI using time deposit rate shows relatively tighter monetary conditions in the primary market than the secondary bond market as compared to the AMCI constructed using interbank rate.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjae:v:13:y:2014:i:1:p:20-33

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