Estimation of weights for the monetary conditions index in Albania

The Monetary Conditions Index (MCI) was first introduced by the Central Bank of Canada [Freedman (1995)] and then many banks and international institutes used this index as a mechanism to interpret the orientation of monetary policy and the effect it has on the economy. MCI is calculated as the linear combination of the variables which represent the main channels of the transmission of monetary policy in an open economy: the real interest rate and thereal effective exchange rate where the coefficients represent their relative effects on aggregate demand. The aim of this index is to give information about monetary conditions.