Monetary Conditions Index: Empirical Study

The purpose of this study is to construct a monetary conditions index (MCI) for the Moroccan economy based on the real exchange rate and the real interest rate, in order to estimate the respective importance of each of these two variables in the orientation of monetary policy and hence the impact of this policy on real activity and the level of inflation.The results obtained, based on a Structural VAR using quarterly data from the 1 st quarter of 2000 to the 4 th quarter of 2019, show us the role of the exchange rate is apparent when the index focuses on the variation of the inflation rate, whereas the demand equation is mainly driven by the variation of the interest rate.1 See Thiessen.G , 1994 for more theoretical work about uncertainty.2 See Mishkin et al (2001) for global reviews about transmission channel of monetary policy. 3The neoclassical channels are the channels mentioned in the reduced form of the MCI (interest rate and exchange rate channel).