© 2000 John Petroff

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Note N-15.1

A widely followed indicator of monetary policy is the change discount rate because it influences all other interest rates. However, interets rates are the only or necessarily a good gauge of monetary policy. Goldam Sachs, a major American investment bank, publishes a financial conditions index which includes coporate bond yields, a trade-weighted index of dollar value and a ratio of stock market capitalization to GDP. For instance, in a March 31, 2002 The Economist article (page 68), the Goldman Sachs financial condition index is shown to point to thight monetary policy in spite of repeated recent cuts in the discount rate.

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