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Central banking in the Philippines: from inflation targeting to financing development

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  • Joseph Lim

Abstract

The Philippines' shift in monetary policy from 'monetary targeting' in the 1980s and 1990s to 'inflation targeting' (IT) in 2002 has so far brought in a more 'benign' monetary policy that is more sensitive to output objectives. This result is mainly due to low inflation rates in the Philippines following the downward trend of world inflation in recent years. Whether this 'benign' policy will continue faces a critical test if inflationary pressures were to return. The problem is that both the monetary and IT regimes are based on a demand explanation of inflation that blames inflation on overexpansion of money and credit. The evidence for the Philippines shows the inflation experience had been mostly a supply-led and cost-push phenomenon. The paper documents that, even with a lax monetary policy, the macroeconomy is still not able to adequately increase lending to the private sector amid fiscal difficulties; this contributes to lagging investment and employment creation. Monetary policy is not independent from the other macro sectors as well as the real and external sectors of the economy. This paper therefore proposes alternative monetary policies to IT that take into consideration the bigger and more complex role of monetary policy in an economy that requires a more development-promoting program.

Suggested Citation

  • Joseph Lim, 2008. "Central banking in the Philippines: from inflation targeting to financing development," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(2), pages 271-285.
    • Handle: RePEc:taf:irapec:v:22:y:2008:i:2:p:271-285
    DOI: 10.1080/02692170701880791
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    References listed on IDEAS

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    1. Roberto Frenkel & Lance Taylor, 2006. "Real Exchange Rate, Monetary Policy and Employment," Working Papers 19, United Nations, Department of Economics and Social Affairs.
    2. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December.
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    Cited by:

    1. Beja Jr, Edsel, 2010. "Is inflation targeting preferred by Filipinos?," MPRA Paper 24382, University Library of Munich, Germany.
    2. Gerardo ¡°Gerry¡± Alfonso Perez, 2018. "Value and Size Effects in the Stock Market of the Philippines," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(2), pages 191-202, April.
    3. Akhand Akhtar Hossain, 2015. "The Evolution of Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 14611.
    4. Junankar, Pramod N. (Raja), 2019. "Monetary Policy, Growth and Employment in Developing Areas: A Review of the Literature," IZA Discussion Papers 12197, Institute of Labor Economics (IZA).
    5. Mevlut Tatliyer, 2017. "Inflation targeting and the need for a new central banking framework," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 40(4), pages 512-539, October.
    6. Beja, Jr., Edsel, 2009. "The Philippines on debt row," MPRA Paper 16553, University Library of Munich, Germany.
    7. Inoue, Takeshi & Toyoshima, Yuki & Hamori, Shigeyuki, 2012. "Inflation targeting in Korea, Indonesia, Thailand, and the Philippines : the impact on business cycle synchronization between each country and the world," IDE Discussion Papers 328, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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