An Estimated (Closed Economy) Dynamic Stochastic General Equilibrium Model for the Philippines: Are There Credibility Gains from Committing to an Inflation Targeting Rule?
We use Bayesian methods to estimate a medium-scale closed economy dynamic stochastic general equilibrium (DSGE) model for the Philippine economy. Bayesian model selection techniques indicate that among the frictions introduced in the model, the investment adjustment costs, habit formation, and the price and wage rigidity features are important in capturing the dynamics of the data, while the variable capital utilization, fixed costs, and the price and wage indexation features are not important. We find that the Philippine macroeconomy is characterized by more instability than the U.S. economy. An analysis of the several subperiods in Philippine economic history also reveals some quantitative evidence that risk aversion increases during crisis periods. Also, we find that the inflation targeting (IT) era is associated with a more stable economy: the standard deviations of the technology shock, the risk-premium shock, and the investment-specific technology shock have significantly lower variability than the pre-IT era, with the last two shocks being reduced by a factor of 5.6 and 2.3, respectively. The IT era is also associated with lower risk aversion. We also find that the adoption of inflation targeting is associated with interest rate smoothing in the monetary reaction function. With a more inertial reaction function, the Bangko Sentral ng Pilipinas (BSP) had achieved greater credibility and consequently, it was able to manage the expectations of forward-looking economic actors, and thereby achieved greater responses of the goal variables to the policy rates, even if the size of interest rates changes are smaller. However, we also find that BSP`s conduct of monetary policy appears to be more procyclical than countercyclical, particularly during the Asian financial crisis, and the recent global financial and economic crisis.
|Date of creation:||2011|
|Contact details of provider:|| Postal: NEDA sa Makati Building, 106 Amorsolo St., Legaspi Village, Makati City,|
Web page: https://www.pids.gov.ph/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Warne, Anders & Coenen, Günter & Christoffel, Kai, 2008. "The new area-wide model of the euro area: a micro-founded open-economy model for forecasting and policy analysis," Working Paper Series 944, European Central Bank.
- Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2006.
"SIGMA: A New Open Economy Model for Policy Analysis,"
International Journal of Central Banking,
International Journal of Central Banking, vol. 2(1), March.
- Christopher J. Erceg & Luca Guerrieri & Christopher J. Gust, 2006. "SIGMA: a new open economy model for policy analysis," International Finance Discussion Papers 835, Board of Governors of the Federal Reserve System (U.S.).
- Erceg, Christopher & Guerriei, Luca & Gust, Christopher, 2006. "SIGMA: A New Open Economy Model for Policy Analysis," MPRA Paper 813, University Library of Munich, Germany.
- Malin Adolfson & Michael K. Andersson & Jesper Lindé & Mattias Villani & Anders Vredin, 2007. "Modern Forecasting Models in Action: Improving Macroeconomic Analyses at Central Banks," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 111-144, December.
- Adolfson, Malin & Andersson, Michael K. & Lindé, Jesper & Villani, Mattias & Vredin, Anders, 2005. "Modern Forecasting Models in Action: Improving Macroeconomic Analyses at Central Banks," Working Paper Series 188, Sveriges Riksbank (Central Bank of Sweden), revised 01 Jun 2006.
- Charlotta Groth & Hashmat Khan, 2010. "Investment Adjustment Costs: An Empirical Assessment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1469-1494, December.
- Hashmat Khan & Charlotta Groth, 2007. "Investment Adjustment Costs: An Empirical Assessment," Carleton Economic Papers 07-08, Carleton University, Department of Economics, revised Dec 2010.
- Michael Woodford, 1999. "Optimal monetary policy inertia," Proceedings, Federal Reserve Bank of San Francisco.
- Woodford, Michael, 1999. "Optimal Monetary Policy Inertia," Manchester School, University of Manchester, vol. 67(0), pages 1-35, Supplemen.
- Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
- Woodford, Michael, 2000. "Optimal Monetary Policy Inertia," Seminar Papers 666, Stockholm University, Institute for International Economic Studies.
- Woodford, M., 1999. "Optimal Monetary Policy Inertia.," Papers 666, Stockholm - International Economic Studies.
- Michael Woodford, 1999. "Optimal Monetary Policy Inertia," NBER Working Papers 7261, National Bureau of Economic Research, Inc.
- Troy Davig & Eric M. Leeper, 2007. "Generalizing the Taylor Principle," American Economic Review, American Economic Association, vol. 97(3), pages 607-635, June.
- Troy Davig & Eric M. Leeper, 2005. "Generalizing the Taylor Principle," NBER Working Papers 11874, National Bureau of Economic Research, Inc.
- Troy Davig & Eric M. Leeper, 2006. "Generalizing the Taylor Principle," Caepr Working Papers 2006-001, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
- Troy A. Davig & Eric M. Leeper, 2005. "Generalizing the Taylor principle," Research Working Paper RWP 05-13, Federal Reserve Bank of Kansas City.
- Kimball, Miles S, 1995. "The Quantitative Analytics of the Basic Neomonetarist Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1241-1277, November.
- Miles S. Kimball & Michael Woodford, 1994. "The quantitative analysis of the basic neomonetarist model," Proceedings, Federal Reserve Bank of Cleveland, pages 1241-1289.
- Miles S. Kimball, 1995. "The Quantitative Analytics of the Basic Neomonetarist Model," NBER Working Papers 5046, National Bureau of Economic Research, Inc.
- Aldaba, Rafaelita M., 2010. "Does Trade Protection Improve Firm Productivity? Evidence from Philippine Micro Data," Discussion Papers DP 2010-32, Philippine Institute for Development Studies.
- Jeffery D. Amato & Thomas Laubach, 1999. "The value of interest rate smoothing : how the private sector helps the Federal Reserve," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 47-64. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:phd:dpaper:dp_2011-04. 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: (Aniceto Orbeta)
If references are entirely missing, you can add them using this form.