Working Paper

Monetary Conditions in the Euro Area: Useful Indicators of Aggregate Demand Conditions?

Kiel Working Papers, 1037

This paper reviews the usefulness of monetary conditions in the euro area as leading indicators for aggregate demand conditions. Monetary conditions are measured with the MCI concept proposed by the Bank of Canada, and with the yield spread. A central result is that causality runs in both ways between monetary and aggregate demand conditions. The endogeneity of monetary conditions raises important implications for its role as a predictor of aggregate demand. It is shown that the information content of monetary conditions depends on the source of business cycle fluctuations and on the response of the central bank to those fluctuations.


Jan Gottschalk


Publication Date
JEL Classification
E32, E37, E52