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Monetary Conditions in Europe: a methodological analysis

Marga Peeters ()

WO Research Memoranda (discontinued) from Netherlands Central Bank, Research Department

Abstract: Recent studies criticise the construction of a Monetary Conditions Index (MCI), a composite index of interest and exchange rates frequently published by (central) banks, IMF and OECD. Instead of estimating the weights of this index by means of simple IS-curves, this paper investigates interest and exchange rates effects on real GDP on the basis of large macroeconometric models for some European countries and the European Economic and Monetary Union. Under a monetary union the impact of the exchange rate on GDP relative to that of the short-term interest rate is substantially lower than without this union. Furthermore the inclusion of a long-term interest rate in the MCI is investigated. From the analyses emerges that for most countries this affects only the level of the MCI but not the turning points.

Keywords: Monetary; Conditions (search for similar items in EconPapers)
Date: 1998
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