IDEAS home Printed from https://ideas.repec.org/p/phs/dpaper/200912.html
   My bibliography  Save this paper

An examination of Philippine monetary policy rules

Author

Listed:
  • Carlos C. Bautista

    (College of Business Administration, University of the Philippines Diliman)

Abstract

A small-scale open economy dynamic stochastic general equilibrium (DSGE) model is used to examine Philippine monetary policy. The model’s parameters are estimated using Bayesian methods. Posterior odds tests are conducted to compare models with different specifications of the policy rule. These tests indicate that the monetary authorities do not respond systematically to exchange rate movements using the policy interest rate. The study shows that output growth movements can be explained largely by technology shocks, world output movements and terms‐of‐trade changes. Policy parameter estimates show a relatively strong reaction of the monetary authorities to inflation when compared to their response to output and the exchange rate. The study shows that policy rules that give more weight to output reflect responses of monetary authorities which are different from those represented by other rules. This is the case in models with the output growth rule. In these models, a terms-of-trade deterioration that leads to currency depreciation, inflation and output contraction induces the monetary authorities to lower its policy rate to mitigate its effects on output. By contrast in other models, the policy rate is raised upon impact of the terms‐of‐trade shock to control inflation.

Suggested Citation

  • Carlos C. Bautista, 2009. "An examination of Philippine monetary policy rules," UP School of Economics Discussion Papers 200912, University of the Philippines School of Economics.
  • Handle: RePEc:phs:dpaper:200912
    as

    Download full text from publisher

    File URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/13/10
    Download Restriction: no

    References listed on IDEAS

    as
    1. Jean-Guillaume Sahuc & Frank Smets, 2008. "Differences in Interest Rate Policy at the ECB and the Fed: An Investigation with a Medium-Scale DSGE Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 505-521, March.
    2. Adnan Haider Bukhari & Safdar Ullah Khan, 2008. "A Small Open Economy DSGE Model for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(4), pages 963-1008.
    3. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156, National Bureau of Economic Research, Inc.
    4. 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.
    5. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    6. Adolfson, Malin & Laseen, Stefan & Linde, Jesper & Villani, Mattias, 2007. "Bayesian estimation of an open economy DSGE model with incomplete pass-through," Journal of International Economics, Elsevier, vol. 72(2), pages 481-511, July.
    7. Lubik, Thomas A. & Schorfheide, Frank, 2007. "Do central banks respond to exchange rate movements? A structural investigation," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1069-1087, May.
    8. Peter N. Ireland, 2004. "Technology Shocks in the New Keynesian Model," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 923-936, November.
    9. Clarida, Richard & Gali, Jordi & Gertler, Mark, 2002. "A simple framework for international monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 879-904, July.
    10. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    11. Frank Schorfheide, 2008. "DSGE model-based estimation of the New Keynesian Phillips curve," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 397-433.
    12. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
    13. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    14. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    15. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
    16. Frank Smets & Rafael Wouters, 2005. "Bayesian New Neoclassical Synthesis (NNS) Models: Modern Tools for Central Banks," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 422-433, 04/05.
    17. John B. Taylor, 2001. "The Role of the Exchange Rate in Monetary-Policy Rules," American Economic Review, American Economic Association, vol. 91(2), pages 263-267, May.
    18. Razin, Assaf & Yuen, Chi-Wa, 2002. "The 'New Keynesian' Phillips curve: closed economy versus open economy," Economics Letters, Elsevier, vol. 75(1), pages 1-9, March.
    19. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    20. Thomas Lubik & Frank Schorfheide, 2006. "A Bayesian Look at the New Open Economy Macroeconomics," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 313-382, National Bureau of Economic Research, Inc.
    21. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    22. Kraay, Aart, 2003. "Do high interest rates defend currencies during speculative attacks?," Journal of International Economics, Elsevier, vol. 59(2), pages 297-321, March.
    23. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    New Keynesian DSGE model; Monetary policy rules; Bayesian methods; Philippines;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:phs:dpaper:200912. 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: (RT Campos). General contact details of provider: http://edirc.repec.org/data/seupdph.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.