Monetary Conditions in the Euro Area: Useful Indicators of Aggregate Demand Conditions?

Jan Gottschalk

No 1037, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper reviews the usefulness of monetary conditions in the euro area as leading indicators for aggregate demand conditions. Monetary conditions are measured with the MCI concept proposed by the Bank of Canada, and with the yield spread. A central result is that causality runs in both ways between monetary and aggregate demand conditions. The endogeneity of monetary conditions raises important implications for its role as a predictor of aggregate demand. It is shown that the information content of monetary conditions depends on the source of business cycle fluctuations and on the response of the central bank to those fluctuations.

Keywords: Monetary Conditions; MCI; Output Gap (search for similar items in EconPapers)
JEL-codes: E32 E37 E52 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1037

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