Monetary Conditions Index: A Composite Measure of Monetary Policy in Pakistan

Abdul Qayyum

MPRA Paper from University Library of Munich, Germany

Abstract: This paper estimated Monetary Conditions Index (MCI) of inflation variable for Pakistan by using monthly data from June 1990 to June 2001. Before calculating MCI we have estimated weights of interest rate and exchange rate to be used in the construction of MCI. For this purpose we used unit root analysis and Johenson (1988) maximum likelihood method base on vector autoregressive technology. The estimated monetary conditions ratio for Pakistan is around 2.79:1. Finally we have constructed the MCI by utilising the estimated weights of rate of interest and exchange rate. The analysis indicate overall tight monetary policy during the decade. However there is some easing spell during 1997 to 1999. This shows the determinedness of monetary authorities with objective of keeping inflation low. Low inflation at the end of the decade indicates the success of monetary authorities in the conduct of monetary policy in achieving the target of low inflation.

Keywords: Monetary Conditions Index (MCI); Monetary policy; Cointegraion; Pakistan (search for similar items in EconPapers)
JEL-codes: E58 (search for similar items in EconPapers)
Date: 2002, Revised 2002
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Citations: View citations in EconPapers (8)

Published in The Pakistan Development Review 4.41(2002): pp. 551-566

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Journal Article: Monetary Conditions Index: A Composite Measure of Monetary Policy in Pakistan (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:2153

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