In the calculation of Monetary Conditions Index the estimation of weights of interest rate and exchange rate for an objective function are very important.
From this estimated model we obtained weights of rate of interest and exchange rate that are to be used in the construction of monetary conditions index of inflation in Pakistan.
Finally monetary conditions index (MCI) is constructed by utilising the weights that are estimated in the previous section.
A rise in the real rate of interest is associated with a rise in the monetary conditions index.
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