Recent work by Clements and Hendry have shown why forecasting systems that are in terms of differences, dVARs, can be more accurate than econometric models that include levels variables, ECMs. For example, dVAR forecasts are insulated from parameter non-constancies in the long run mean of the...

We show that a monetary conditions index in unlikely to be a useful operational policy tool unless numerous assumptions are satisfied by the empirical model from the MCI is dirived.

This paper lays out a simple open economy macromodel based on the recent literature on imperfect competition and equilibrium unemployment.