Monetary Conditions Indicators

Monetary Conditions IndicatorsMartin CIHAK ? International Monetary Fund, Washington, D.C.Tomas HOLUB ? Czech National Bank; Faculty of Social Sciences, Charles University, PragueThe article provides an overview of foreign-language (non-Czech) literature on monetary conditions indices. The authors also discuss the issues involved in the construction of a monetary conditions index for the Czech Republic. They argue that if a monetary conditions index is to have any use for practical monetary policy, one must first distinguish two components of monetary policy stance: the monetary policy stance vis-a-vis the monetary policy target, and the monetary policy target itself. They conclude that MCI can be useful for measuring the monetary stance vis-a-vis the target, but better still is a frequent publication of inflation forecasts and the methodology behind such forecasts on the part of the central bank.