Monetary Conditions Index for Croatia

Manuel Benazić

Economic Research-Ekonomska Istraživanja, 2012, vol. 25, issue S1, 47-64

Abstract: MCI is an indicator of the combined effect of short-term interest rates and exchange rates on price level and aggregate demand. In construction of the index for Croatia, Engle-Granger co-integration method of time series was used. Obtained results indicate that in the observed period monetary policy in Croatia was mainly expansive, suggesting an easing of monetary conditions. However, it is necessary to bear in mind a number of limitations in the conduct of Croatian monetary policy if it is to be based on the use of the MCI. The most important constrain, that reduces the possibility of freely determining domestic interest rates and money supply, stems from a relative freedom of international capital flows between Croatia and other countries and the necessity of maintaining a stable nominal exchange rate due to a highly euroized economy.

Date: 2012
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DOI: 10.1080/1331677X.2012.11517556

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