Measuring the stance of monetary policy is of importance for the analysis and implementation of monetary policy. The existence of multiple instrument framework as well as the significance of the interest rate and exchange rate channel in emerging economies imply that monetary condition index can play an important role in evaluating whether monetary policy is restrictive or expansive in these economies. In this paper, we use the VAR model to evaluate the role of monetary condition index as an overall measure of monetary policy in emerging economies. The weight of components of monetary condition index is derived from the inflation equation in the VAR estimation. The empirical results suggest that a contraction in monetary policy causes a reduction in inflation. The finding implies that monetary condition index is a useful indicator that can predict the stance of monetary policy and predict the trend of inflation in emerging economies
