An indicator of monetary bias for emerging and partially dollarized economies: The case of Uruguay

  1. Civelli, Conrado Brum 123
  2. Garcia-Hiernaux, Alfredo 1
  1. 1 Universidad Complutense de Madrid
    info

    Universidad Complutense de Madrid

    Madrid, España

    ROR 02p0gd045

  2. 2 Banco Central del Uruguay
  3. 3 Universidad de la República
    info

    Universidad de la República

    Montevideo, Uruguay

    ROR https://ror.org/030bbe882

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Journal:
International Review of Economics & Finance

ISSN: 1059-0560

Year of publication: 2023

Volume: 85

Pages: 206-219

Type: Article

DOI: 10.1016/J.IREF.2023.01.004 GOOGLE SCHOLAR lock_openOpen access editor

More publications in: International Review of Economics & Finance

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Abstract

The instability of the relationships between interest rates, amount of money, and exchange rate, and thetransmission problems between different interest rates hinder the measurement of monetary policy througha single variable. This difficulty is particularly relevant in emerging and dollarized economies. This paperproposes a multivariate indicator of monetary bias for these economies in which the monetary and financialvariables are considered according to the impact they have on inflation in each period. We analyze the case ofUruguay and use a Factor Augmented Vector Autoregressive Moving Average model with exogenousvariables (FAVARMAX) to estimate these effects. Using the evolution of the indicator proposed, called theMonetary Conditions Index (MCI), we characterize the policy adopted by the Central Bank of Uruguaybetween 2010-2019, a period of inflation targeting.

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