CAN YOU EXPLAIN THE MONETARY CONDITIONS INDEX EXAMPLE IN THETEXT? - ProProfs Discuss
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Can you explain the monetary conditions index example in thetext?



Asked by Lucas, Last updated: Nov 08, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

The paragraph implies that a one percentage point rise in interest rates has the sametype of effect on the economy as would a 3 percent increase in the trade-weightedexchange rate. it means that the impact on the economy is similar.as such, since the monetary conditions index likens a 1% increase in interest rates tobe similar in impact to a 3% increase in the exchange rate, what would happen to themonetary conditions index if interest rates rose by 1% and the exchange rate fell by3%? the two moves would cancel each other out as far as the monetary conditionsindex is concerned, and the index would remain unchanged.
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