What Is the Monetary Conditions Index (Mci)?

The Bank of Canada developed the monetary conditions index (Mci) as a policy guide for a central bank in a small open economy. It was intended to measure how monetary policy actions affect the economy through interest rates and the exchange rate. The Mci has b📖ecome a benchmark for use around the wo🐷rld.

Understanding the Monetary Conditions Inꦚdex (MCI)𒅌

The Bank of Canada developed the monetary conditions index to study the relationships between interest rates in Canada, the relative trading 澳洲幸运5开奖号码历史查询:exchange rate of Canadian currency, and Canada’s economy. The bank for both the Mci and its components monthly.

澳洲幸运5开奖号码历史查询:Central banks select a base period and chart the 澳洲幸运5开奖号码历史查询:weighted average of interest rate changes and exchange rate changes against the actual values of those variables to calculate the monetary conditions index. This calcu♑lation allows nations to monitor the e♑ffect of short-term monetary policy by linking changes in interest rates set by central banks with changes to exchange rates influenced by the open foreign exchange market.

Calculating the Mci

The Mci calculation used the change in the 90-day commercial paper rate in 1987, adding a percentage of movement in the exchange rate of the Canadian dollar (CAD). This exchange rate measured the CAD to the C-6 exchange rate. The C-6 averaged the currencies of six of Canada's trading partners: the United States, Europe, Japan, the United Kingdom, Switzerland, and Sweden.

The Canadian-dollar effective exchange rate index (CERI) replaced the C-6 index in 2006 and was retired in 2018 for the nominal Canadian effective exchange rate (CEER). The CEER captures 17 currencies, including those of the U.S., Japan, the U.K., Switzerland, Australia, and Sweden. The targeted countries include those that account for at least 0.5% of Canadian non-oil exports and Canadian non-oil imports.

Mci vs. Other Indexes

Many central banks use the Mci as a 澳洲幸运5开奖号码历史查询:benchmark. The 澳洲幸运5开奖号码历史查询:International Monetary Fund (IMF) and the Organization for Economic Cꦕo-ope🐭ration and Development (OECD) use the measurement for a variety of economies.

The Mci is a starting point for central banks but many nations have established alternate and more elaborate measures of financial conditions. The Bank of England uses its Monetary and Financial Conditions Index (MFCI) to capture the relationship between asset prices, credit variables, and the U.K. economy.

The Bottom Line

The monetary conditions index uses a nation's short-term interest rates and exchange rates to measure the tightness of monetary conditions in the economy. The Mci was developed by the Bank of Canada and is used by central banks and international organizations. The Federal Reserve of the United States and the Bank of England use an expanded index to analyze financial conditions in the nations.