Measuring Uncertain Economic Conditions: A Survey of Economic Conditions Index, Monetary Conditions Index and Monetary Rules
Mengukur Keadaan Ekonomi Tidak Menentu: Suatu Tinjauan Mengenai Indeks Keadaan Ekonomi, Indeks Keadaan Monetari dan Peraturan Monetari
Keywords:
economic uncertainty index, monetary rules, monetary conditions index, uncertain economic conditions, uncertaintyAbstract
Uncertain economic conditions refer to the unforeseen upcoming events in the economy. A certain measurement of uncertain economic conditions is necessary to serve as a benchmark to measure the conditions. The objective of this paper is to survey the contemporary theoretical developments of the measurements of uncertain economic conditions, namely economic uncertainty index, monetary conditions index (MCI) and monetary rules. This article also reviews the variants in each theoretical measure of uncertain economic conditions. The survey of the best measure of uncertainty economic conditions may help to contribute to address the economic uncertainties precisely.
Downloads
Download data is not yet available.
References
Atta-Mensah, J. (2004). Money demand and economic uncertainty. Bank of Canada Working Paper No. 2004-25.
Baker, S. R., Bloom, N., & Davis, S. J. (2013). Measuring economic policy uncertainty. Working Paper No. 83,
Chicago Booth Research Paper No. 13-02.
Bernanke, B. S. (2003). “Constrained discretion” and monetary policy. Remarks by Governor Ben. S. Bernanke,
Before the Money Marketeers of New York University, New York, February 3, 2003.
Bernanke, B. S. (2010). On the implications of the financial crisis for economics. Speech Presented at the Center
for Economic Policy Studies and the Bendheim Center for Finance. Princeton New Jercey. http://www.
federalreserve.gov/newsevents/speech/bernanke20100924a.htm.Accessed 25 November 2013.
Bernanke, B. S. (2012). Opening remarks. Speech presented at Federal Reserve Conference on Central Banking:
Before, during, and after the crisis, Washington, D.C. http://www.federalreserve.gov/newsevents/speech/
bernanke20120323a.htm. Accessed 25 November 2013.
Billi, R. M. (2009). Was monetary policy optimal during past deflation scares? Economic Review (Federal Reserve
Bank of Kansas City), 67-98.
Bloom, N., Kose, M. A., & Terrones, M. E. (2013). Held back by uncertainty. Finance and Development, 50 (1),
38-41.
Bofinger, P., & Wollmershӓuser, T. (2001). Managed floating: Understanding the international monetary order.
Economic Papers No: 30, University of Wurzburg.
Burger, P., & Knedlik, T. (2004). The MCI as a monetary policy guide in a small, open emerging market economy.
South African Journal of Economics, 72 (2), 366-384.
Caplin, A., & Schotte, A. (2008). The foundations of positive and normative economics: A handbook. Oxford:
Oxford University Press.
Case, K. E., Fair, R. C., & Oster, S. M. (2009). Principles of Economics. United States of America: Prentice Hall.
Cateau, G. (2005). Monetary policy under model and data-parameter uncertainty. Bank of Canada Working Paper, 2005-6.
Clarida, R., Gali, J., & Gertler, M. (1998). Monetary policy rules in practice. Some international evidence. European
Economic Review, 42, 1033–67.
Clarida, R., Gali, J., & Gertler, M. (2000). Monetary policy rules and macroeconomic stability: Evidence and some
theory. Quarterly Journal of Economics, 115, 147–80.
Costa, S. (2000). Monetary conditions index. Economic Bulletin and Financial Stability Report Articles, Banco de
Perotugal, Economics and Research Department, 97-106.
Deutsche Bundesbank (1999). Taylor interest rate and monetary conditions index. Monthly Report, 47-63.
Eika, K. H., Neil R. E. & Ragnar, N. (1996). Hazards in implementing a monetary conditions index. Oxford
Bulletin of Economics and Statistics, 58 (4), 765-790.
Ellsberg, D. (1961). Risk, ambiguity, and the savage axioms. The Quarterly Journal of Economics, 75(4), 643–669.
Epstein, L. G. (1999). A definition of uncertainty aversion. Review of Economic Studies, 66 (3), 579–608.
Ericsson, N. R., Jansen, E. S., Kerbeshian, N. A., & Nymoen, R. (1998). Interpreting a monetary conditions index
in economic policy. BIS Conference Papers, 6, 237-254.
Evans, G. W. (2003). Friedman’s money supply rule vs optimal interest rate policy. Bank of Finland Discussion
Papers 10/2003.
Freedman, C. (1994). The use of indicators and of the monetary conditions index in Canada. In Balino, T. J.
T. and Cottarelli, C. (eds). Frameworks for monetary stability: policy issues and country experiences, IMF,
Washington, D. C., 458-476.
Friedman, M. (1960). A program for monetary stability. New York: Fordham University Press.
Gan, P. T. (2014). The optimal economic uncertainty index: A grid search application. Computational Economics,
43(2), 159-182.
Gan, P. T., & Kwek, K. T. (2008). Estimating monetary policy rules: An optimal monetary conditions index for
Malaysia. International Research Journal of Finance and Economics, 14, 196-211.
Gerlach, S. and Schnabel, G. (2000). The Taylor rule and interest rates in the EMU area. Economics Letters,
67,165-71.
Hamalainen, N. (2004). A survey of Taylor-type monetary policy rules. Department of Finance Canada Working
Papers 2004-02.
Hansson, B., & Lindberg, H. (1994). Monetary conditions index: A monetary policy indicator. Swedish Central
Bank Quarterly Review, 3, 12-17.
Hofmann, B. & Bogdanova, B. (2012). Taylor rules and monetary policy: A global ‘Great Deviation’?BIS Quarterly
Review, 37-49.
Jackman, M. (2010). Money demand and economic uncertainty in Barbados. Central Bank of Barbados, MPRA
Paper No. 29360.
Jenkins, P., & Longworth, D. (2002). Monetary policy and uncertainty. Bank of Canada Review, 1-10.
Kannan, R., Sanyal, S. & Bhoi, (2006). Monetary conditions index for India. Reserve Bank of India Occasional
Papers, 27 (3), 57-86.
Kilponen, J., & Leitemo, K. (2008). Model uncertainty and delegation: A case for Friedman’s k-percent money
growth rule? Journal of Money, Credit and Banking, 40 (2-3), 547-556.
Kliesen, K. L. (2013). Uncertainty and the economy. Federal Reserve Bank of St. Louis, The Regional Economist,
1-3.
Knedlik, T., (2005). Estimating the monetary conditions index for South Africa. Paper presented at the Exchange
Rate Econometrics conference, April 2005, Luxembourg.
Mandler, M. (2007). The Taylor rule and interest rate uncertainty in the U.S. 1970-2006. MPRA Paper No. 18770,
1-27.
Mises, L. (1949). Human Action. A Treatise on Economics (1996ed.). New York: The Foundation for Economic
Education.
Orphanides, A. (2007). Taylor rules. Federal Reserve Board, Finance and Economics Discussion Series, 2007-18,
1-13.
Orphanides, A., & Williams, J. C. (2007). Robust monetary policy with imperfect knowledge. Federal Reserve
Bank of San Francisco Working Paper Series, 1-47.
Osborne-Kinch, J., & Holton, S. (2010). A discussion of the monetary condition index. Central Bank of Ireland
Quarterly Bulletin Articles, 68-80.
Ouliaris, S. (2012). Economic models: Simulations of reality. IMF Finance and Development. http://www.imf.org/
external/pubs/ft/fandd/basics/models.htm. Accessed 27 November 2013.
Poole, W. (2005). How predictable is the Fed? Federal Reserve Bank of St. Louis Review, 87, 659-668.
Poon, W. C. (2009). Modelling monetary transmission channels: The case of Philippines. Journal of Applied
Research in Finance, 1(1), 63-71.
Puah, C. H. (2008). Economic uncertainty and the demand for money in Malaysia: A bounds testing estimation.
Paper presented in the 7th International Conference on Computational Intelligence in Economics and Finance
(CIEF 2008). Organized by Kainan University, Taoyuan, Taiwan. 5-7, December 2008.
Qayyum, A. (2002). Monetary conditions index: A composite measure of monetary policy in Pakistan. The Pakistan Development Review, 41(4), 551-566.
Scheide, J. (1989). A K-percent rule for monetary policy in West Germany. Review of World Economics, 125(2),
326-336.
Srour, G. (2003). Some notes on monetary policy rules with uncertainty. Bank of Canada Working Paper 2003-16.
Stevens, G. R. (1998). Pitfalls in the use of monetary conditions indexes. Reserve Bank of Australia Bulletin, 34-43.
Svensson, L. E. O. (2003). What is wrong with Taylor rules? Using judgment in monetary policy through targeting
rules. Journal of Economic Literature, 41(2), 426-477.
Taylor, J. B. (1993). Discretion versus policy rules in practice. Carnegie-Rochester Conference Series on Public
Policy, Elsevier, 39 (1), 195-214.
Baker, S. R., Bloom, N., & Davis, S. J. (2013). Measuring economic policy uncertainty. Working Paper No. 83,
Chicago Booth Research Paper No. 13-02.
Bernanke, B. S. (2003). “Constrained discretion” and monetary policy. Remarks by Governor Ben. S. Bernanke,
Before the Money Marketeers of New York University, New York, February 3, 2003.
Bernanke, B. S. (2010). On the implications of the financial crisis for economics. Speech Presented at the Center
for Economic Policy Studies and the Bendheim Center for Finance. Princeton New Jercey. http://www.
federalreserve.gov/newsevents/speech/bernanke20100924a.htm.Accessed 25 November 2013.
Bernanke, B. S. (2012). Opening remarks. Speech presented at Federal Reserve Conference on Central Banking:
Before, during, and after the crisis, Washington, D.C. http://www.federalreserve.gov/newsevents/speech/
bernanke20120323a.htm. Accessed 25 November 2013.
Billi, R. M. (2009). Was monetary policy optimal during past deflation scares? Economic Review (Federal Reserve
Bank of Kansas City), 67-98.
Bloom, N., Kose, M. A., & Terrones, M. E. (2013). Held back by uncertainty. Finance and Development, 50 (1),
38-41.
Bofinger, P., & Wollmershӓuser, T. (2001). Managed floating: Understanding the international monetary order.
Economic Papers No: 30, University of Wurzburg.
Burger, P., & Knedlik, T. (2004). The MCI as a monetary policy guide in a small, open emerging market economy.
South African Journal of Economics, 72 (2), 366-384.
Caplin, A., & Schotte, A. (2008). The foundations of positive and normative economics: A handbook. Oxford:
Oxford University Press.
Case, K. E., Fair, R. C., & Oster, S. M. (2009). Principles of Economics. United States of America: Prentice Hall.
Cateau, G. (2005). Monetary policy under model and data-parameter uncertainty. Bank of Canada Working Paper, 2005-6.
Clarida, R., Gali, J., & Gertler, M. (1998). Monetary policy rules in practice. Some international evidence. European
Economic Review, 42, 1033–67.
Clarida, R., Gali, J., & Gertler, M. (2000). Monetary policy rules and macroeconomic stability: Evidence and some
theory. Quarterly Journal of Economics, 115, 147–80.
Costa, S. (2000). Monetary conditions index. Economic Bulletin and Financial Stability Report Articles, Banco de
Perotugal, Economics and Research Department, 97-106.
Deutsche Bundesbank (1999). Taylor interest rate and monetary conditions index. Monthly Report, 47-63.
Eika, K. H., Neil R. E. & Ragnar, N. (1996). Hazards in implementing a monetary conditions index. Oxford
Bulletin of Economics and Statistics, 58 (4), 765-790.
Ellsberg, D. (1961). Risk, ambiguity, and the savage axioms. The Quarterly Journal of Economics, 75(4), 643–669.
Epstein, L. G. (1999). A definition of uncertainty aversion. Review of Economic Studies, 66 (3), 579–608.
Ericsson, N. R., Jansen, E. S., Kerbeshian, N. A., & Nymoen, R. (1998). Interpreting a monetary conditions index
in economic policy. BIS Conference Papers, 6, 237-254.
Evans, G. W. (2003). Friedman’s money supply rule vs optimal interest rate policy. Bank of Finland Discussion
Papers 10/2003.
Freedman, C. (1994). The use of indicators and of the monetary conditions index in Canada. In Balino, T. J.
T. and Cottarelli, C. (eds). Frameworks for monetary stability: policy issues and country experiences, IMF,
Washington, D. C., 458-476.
Friedman, M. (1960). A program for monetary stability. New York: Fordham University Press.
Gan, P. T. (2014). The optimal economic uncertainty index: A grid search application. Computational Economics,
43(2), 159-182.
Gan, P. T., & Kwek, K. T. (2008). Estimating monetary policy rules: An optimal monetary conditions index for
Malaysia. International Research Journal of Finance and Economics, 14, 196-211.
Gerlach, S. and Schnabel, G. (2000). The Taylor rule and interest rates in the EMU area. Economics Letters,
67,165-71.
Hamalainen, N. (2004). A survey of Taylor-type monetary policy rules. Department of Finance Canada Working
Papers 2004-02.
Hansson, B., & Lindberg, H. (1994). Monetary conditions index: A monetary policy indicator. Swedish Central
Bank Quarterly Review, 3, 12-17.
Hofmann, B. & Bogdanova, B. (2012). Taylor rules and monetary policy: A global ‘Great Deviation’?BIS Quarterly
Review, 37-49.
Jackman, M. (2010). Money demand and economic uncertainty in Barbados. Central Bank of Barbados, MPRA
Paper No. 29360.
Jenkins, P., & Longworth, D. (2002). Monetary policy and uncertainty. Bank of Canada Review, 1-10.
Kannan, R., Sanyal, S. & Bhoi, (2006). Monetary conditions index for India. Reserve Bank of India Occasional
Papers, 27 (3), 57-86.
Kilponen, J., & Leitemo, K. (2008). Model uncertainty and delegation: A case for Friedman’s k-percent money
growth rule? Journal of Money, Credit and Banking, 40 (2-3), 547-556.
Kliesen, K. L. (2013). Uncertainty and the economy. Federal Reserve Bank of St. Louis, The Regional Economist,
1-3.
Knedlik, T., (2005). Estimating the monetary conditions index for South Africa. Paper presented at the Exchange
Rate Econometrics conference, April 2005, Luxembourg.
Mandler, M. (2007). The Taylor rule and interest rate uncertainty in the U.S. 1970-2006. MPRA Paper No. 18770,
1-27.
Mises, L. (1949). Human Action. A Treatise on Economics (1996ed.). New York: The Foundation for Economic
Education.
Orphanides, A. (2007). Taylor rules. Federal Reserve Board, Finance and Economics Discussion Series, 2007-18,
1-13.
Orphanides, A., & Williams, J. C. (2007). Robust monetary policy with imperfect knowledge. Federal Reserve
Bank of San Francisco Working Paper Series, 1-47.
Osborne-Kinch, J., & Holton, S. (2010). A discussion of the monetary condition index. Central Bank of Ireland
Quarterly Bulletin Articles, 68-80.
Ouliaris, S. (2012). Economic models: Simulations of reality. IMF Finance and Development. http://www.imf.org/
external/pubs/ft/fandd/basics/models.htm. Accessed 27 November 2013.
Poole, W. (2005). How predictable is the Fed? Federal Reserve Bank of St. Louis Review, 87, 659-668.
Poon, W. C. (2009). Modelling monetary transmission channels: The case of Philippines. Journal of Applied
Research in Finance, 1(1), 63-71.
Puah, C. H. (2008). Economic uncertainty and the demand for money in Malaysia: A bounds testing estimation.
Paper presented in the 7th International Conference on Computational Intelligence in Economics and Finance
(CIEF 2008). Organized by Kainan University, Taoyuan, Taiwan. 5-7, December 2008.
Qayyum, A. (2002). Monetary conditions index: A composite measure of monetary policy in Pakistan. The Pakistan Development Review, 41(4), 551-566.
Scheide, J. (1989). A K-percent rule for monetary policy in West Germany. Review of World Economics, 125(2),
326-336.
Srour, G. (2003). Some notes on monetary policy rules with uncertainty. Bank of Canada Working Paper 2003-16.
Stevens, G. R. (1998). Pitfalls in the use of monetary conditions indexes. Reserve Bank of Australia Bulletin, 34-43.
Svensson, L. E. O. (2003). What is wrong with Taylor rules? Using judgment in monetary policy through targeting
rules. Journal of Economic Literature, 41(2), 426-477.
Taylor, J. B. (1993). Discretion versus policy rules in practice. Carnegie-Rochester Conference Series on Public
Policy, Elsevier, 39 (1), 195-214.
Downloads
Published
2015-10-21
How to Cite
Lim, S.-Y., Gan, P.-T., Muhammad, F. bin, & Mohd Hussin, M. Y. bin. (2015). Measuring Uncertain Economic Conditions: A Survey of Economic Conditions Index, Monetary Conditions Index and Monetary Rules: Mengukur Keadaan Ekonomi Tidak Menentu: Suatu Tinjauan Mengenai Indeks Keadaan Ekonomi, Indeks Keadaan Monetari dan Peraturan Monetari. EDUCATUM Journal of Social Sciences, 1(1), 66–74. Retrieved from https://ojs.upsi.edu.my/index.php/EJOSS/article/view/85
Issue
Section
Articles
