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Measuring Monetary Conditions in A Small Open Economy: The Case of Malaysia

Muhamed Zulkhibri Abdul Majid ()

MPRA Paper from University Library of Munich, Germany

Abstract: The paper explores the measurement of monetary condition in Malaysia to augment the existing monetary policy framework. As an open economy, Monetary Condition Index (MCI) and Financial Condition Index (FCI) are applicable to understand the monetary condition especially in the era of financial deregulation and liberalisation. The results obtained suggest that the index is most useful when the exchange market exhibits stable conditions, and would be a constructive tool in the simultaneous management of the foreign currency and domestic money markets. However, the frequent experience of instability caused by supply and demand shocks with persistent and large inertia in the economy complicates the practical use of MCI and FCI in Malaysia. While this approach obviously does not provide answers to every question and as a leading indicator for inflation, it nonetheless makes it possible to measure the monetary condition in the Malaysian economy.

Keywords: Monetary condition index; Monetary Policy; Malaysia (search for similar items in EconPapers)
JEL-codes: E52 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2010-01-01
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https://mpra.ub.uni-muenchen.de/29041/1/MPRA_paper_29041.pdf original version (application/pdf)

Related works:
Journal Article: Measuring monetary conditions in a small open economy: the case of Malaysia (2012) Downloads
Working Paper: Measuring Monetary Conditions in A Small Open Economy: The Case of Malaysia (2010) Downloads
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