How to Measure the Monetary Stance

This note provides a conceptual framework to organize discussions of the appropriateness of the monetary policy stance and presents tools that country teams can employ to measure, report, and evaluate the stance of monetary policy. The note focuses exclusively on aggregate demand considerations—on whether the stance is tight or loose—without considering whether such a stance is appropriate for achieving policy objectives. The latter requires considering aggregate supply and Phillips Curve trade-offs. The note does not cover other macroeconomic policies, such as macroprudential or fiscal measures, which could also have a considerable impact on the effectiveness of monetary policy.