Advanced Search
MyIDEAS: Login

Monetary transmission mechanism in the Philippines : the interest rate channel


Author Info

  • Francisco G. Dakila, Jr.
  • Ma. Digna G. Paraso

    (Bangko Sentral ng Pilipinas)

Registered author(s):


    The transmission mechanism of monetary policy explains how monetary policy works—that is, how economic and financial variables respond to monetary policy actions. In view of the complexity of the transmission process, properly identifying the process as it works in the Philippines requires considerable effort and volume of work. In the context of inflation targeting, for example, an understanding of the monetary policy transmission mechanism is essential to understanding what monetary policy can and should do and at what point in time actions should be undertaken to contain or offset disturbances that could threaten the achievement of the inflation target. In this paper, we concentrate on the interest rate channel. We present initial estimates, obtained from general-to-specific modeling, and validate the results using a vector error correction model. The results confirm expectations that an increase in the 91-day Tbill rate generates a lagged reduction in the level of fixed capital formation and a decline in GDP growth, which is strongest about four quarters after the interest rate shock. However, the results also show that there is likewise an initial increase in the inflation rate; by the eighth quarter, however, inflation falls below the baseline. We view our results as an initial step in a research program that seeks to specify the various channels of monetary policy impact.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL:
    Download Restriction: no

    Bibliographic Info

    Article provided by University of the Philippines School of Economics and Philippine Economic Society in its journal Philippine Review of Economics.

    Volume (Year): 42 (2005)
    Issue (Month): 1 (June)
    Pages: 55-80

    as in new window
    Handle: RePEc:phs:prejrn:v:42:y:2005:i:1:p:55-80

    Contact details of provider:
    Postal: Diliman, Quezon City 1101
    Phone: 927-9686
    Web page:
    More information through EDIRC

    Related research

    Keywords: inflation targeting; interest rate; monetary policy;

    Find related papers by JEL classification:


    No references listed on IDEAS
    You can help add them by filling out this form.



    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


    Access and download statistics


    When requesting a correction, please mention this item's handle: RePEc:phs:prejrn:v:42:y:2005:i:1:p:55-80. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Reuben T. Campos).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.