Sunday, February 5, 2012

Introducing the Global Monetary Policy Rate Index

Central Bank News has developed a set of interest rate indexes to track broad trends in monetary policy across the globe. The index is essentially a GDP weighted average interest rate, thus the index can also be used to estimate the cost of capital, assessing monetary policy tightness/looseness, and other economic and financial analysis for the broad groups. There are four indexes: All, Developed, Emerging, and  Lesser Developed & Frontier markets.  The full methodology and components are detailed below.

Commentary:
As can be seen in the initial print of the chart, emerging markets and LDF markets were generally tightening rates during 2011, but have begun to reverse course given the the uncertain environment and deterioration in global economic conditions. As at January the indexes stood as follows: All 2.77% (2.58% in 2011), Developed 0.68% (0.70% in 2011), Emerging 6.52% (6.05% in 2011), and Lesser Developed & Frontier 7.13% (6.09% in 2011). Compared to the previous month the indexes have moved as follows: All -2bps, Developed unch., Emerging -6bps, LDF -2bps.

Methodology:
The indexes are compiled using Central Bank News' proprietary global central bank interest rate database, and IMF (International Monetary Fund) GDP statistics from 2010 to calculate GDP weightings for each group. The groupings for Developed and Emerging markets are based loosely on the MSCI indexes, but as noted weightings are calculated using 2010 GDP. The LDF index comprises all countries that did not fall into the Emerging or Developed categories. Each index has the following number of components: All 81, Developed 13, Emerging 21, LDF 47.

See also: Carry Trade Index

Source: www.CentralBankNews.info

18 comments:

  1. Note we are working on gathering more historical data to expand the history of the indexes.

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  2. This is very interesting and informative. Do you plan to do one for individual countries? Thank you.

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    1. Hi Andrew - the index is effectively a composite interest rate, so the index would be just the interest rate for an individual country. However it might be worth looking at regional indexes.

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  3. Interesting, a geographical index might be worth a look too.... e.g. Asia, Africa, Europe, etc

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    1. Good idea, we will incorporate that in future releases.

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  4. Look forward to seeing this develop further, will you be updating it monthly?

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    1. Yes, you can look forward to seeing monthly updates to the index, as well as periodic updates as we refine the indexes. We will also look to make the data available once it is more fine-tuned so that people can use it for research.

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    2. Are you going to put the underlying interest rate series up also?

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    3. Hi, the underlying interest rate data is available on request, but the index data is live on the website now (check out the interest rates section).

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  5. How often are GDP numbers updated?

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    1. Hi, The initial release uses a static GDP weighting from 2010 year data from the IMF. I'll get a research note out soon that looks at the use of dynamic GDP weighting and long-term average of GDP for calculating weights. There's a few issues involved like changing structural dynamics and potential distortions from sudden vs phased changes of weights - but I'll detail this in the upcoming research note as we look to fine tune the index.

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    2. Do you use real or nominal GDP for the weighting?

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  6. Possible to extend the index back to include more historical data?

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    1. Hi Wilfred, we have extended the Developed Markets index back to January 1999: GMPRI - Developed Markets

      Work is underway to extend the rest of the indexes.

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    2. Excellent piece of work. Thanks!

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  7. Oh, this is a great tool and indicator. We're waiting for a regional interest rate indices!

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    1. Thanks Igor, is there any particular region you would like to see first?

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