The BSP Economic Newsletter aims to provide to the BSP community and the public a readily accessible, up-to-date, concise and reader-friendly compendium of studies on current economic and financial issues.
Latest Issue:
2023
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Measuring Economic Policy Uncertainty in the Philippines
Joselito R. Basilio, Mauro E. Jasmin, Jr., & Ma. Ellysah Joy T. Guliman
Abstract: This study develops news-based indices of policy uncertainties in the Philippines. These include the economic policy uncertainty (EPU) index, which is derived by counting the number of articles containing keywords in the E-P-U triple which is subsequently scaled, standardized, and normalized. To further investigate and assess how monetary policy influences the movement in the EPU index, a category-specific monetary policy uncertainty index is also constructed. Similar to other studies, the indices show a tendency to rise around leadership changes (national elections), periods of discussions on important economic policy issues, episodes of high market volatility, as well as significant local and global economic events such as the TRAIN law passage, US-China trade tensions in 2018, and the onset of the COVID-19 pandemic in 2020..
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Macroeconomic effects of temperature shocks in the Philippines: Evidence from impulse responses by local projections
Jean Christine A. Armas, Ranelle Jasmin L. Asi, Dyan Rose L. Mandap, and Gabrielle Roanne L. Moral
Abstract: This study quantifies the contemporaneous and long-term effects of temperature shocks on output growth, channels of economic activity, as well as on inflation, which are primary considerations of the Bangko Sentral ng Pilipinas in its assessment of the appropriate monetary policy stance. It adopted the methodology employed by the IMF (Acevedo et al., 2020) and the ECB (Faccia et al., 2021) while the Local Projections method proposed by Jórda (2005) was used to trace the impulse response function. This study found that, on average, temperature shocks or a 1-degree increase in the annual mean temperature generally lead to a downside risk on economic activity and upward pressure on inflation and thus underscore the significance of coordinated policy responses from the monetary and fiscal authorities.
Previous Issues:
2023
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Potential Output and Trade: Key Findings and Policy Implications
Charles John P. Marquez, Marcus Jude P. San Pedro, and Jean Christine A. Armas
Abstract: This paper examines the relationship between potential output growth and trade, employing simple correlations, Granger causality tests, and an autoregressive distributed lag (ARDL) model. The findings indicate that a widening trade deficit is associated with higher potential output growth, with imports of capital goods and raw materials contributing significantly. However, the impact of goods exports on potential output growth is not statistically significant. The study also explores the import-productivity nexus, highlighting the positive effects of capital goods imports on productivity growth through technological transfers from developed economies.
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A MACHINE LEARNING APPROACH TO CONSTRUCTING A WEEKLY GDP TRACKER USING GOOGLE TRENDS
Cherrie R. Mapa, Jean Christine A. Armas, Ma. Ellysah Joy T. Guliman, Michael Lawrence G. Castañares, and Genna Paola S. Centeno
Abstract: Timely and accurate information are essential inputs for policy formulation, especially in times of crisis. The COVID-19 pandemic has highlighted the contribution of alternative and unconventional data sources in providing high frequency indicators for macroeconomic surveillance. This newsletter presents a near real-time tracker of economic activity using high frequency internet search data from Google Trends and a machine learning model. Results show that the constructed weekly GDP tracker may serve as a complementary surveillance tool for real sector activity.
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AN EMPIRICAL NOTE ON THE PHILIPPINES’ POLICY RESPONSES TO MANAGING CAPITAL FLOWS: Evidence from the Crisis Periods
Jean Christine A. Armas, Erniel Martin R. Enrile, Ma. Aizl Camille C. Santillan, and Josephine A. David
Abstract: This paper estimates the Philippines’ policy reaction functions for foreign exchange intervention, monetary policy, macroprudential policy measures, and fiscal policy for 2005Q1-2021Q2 using linear regression and multinomial logit regression models. It finds that foreign exchange intervention policy is used proactively in responding to capital flows while there is no evidence of countercyclical monetary policy amid episodes of capital inflows. The paper also provides evidence that macroprudential policy measures are more likely to be eased amid episodes of extraordinary crisis such as the COVID-19 pandemic.
2022
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INTRODUCING A MULTI-DIMENSIONAL FINANCIAL DEVELOPMENT INDEX FOR THE PHILIPPINES
Jean Christine A. Armas and Nerissa D. De Guzman
Abstract: Using principal components analysis, the authors construct indices that quantify development in financial institutions and markets with respect to access, depth, efficiency, and stability. Evidence suggests that these are distinct dimensions of financial development and, thus, necessary analytical tools to facilitate the analysis and pinning down of likely sources of fragilities in our financial system. The authors also find that both financial institutions and markets have progressed and developed since the global financial crisis and that the BSP’s timely policy responses have mitigated the potential adverse impacts of the recent pandemic on the financial sector.
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INFLATION EXPECTATIONS: Some observations from BSP’s surveys
Alan Chester T. Arcin and Michael Lawrence G. Castañares
Abstract: Inflation expectations refer to economic agents’ forecasts of future inflation. Central banks, particularly those that operate an inflation-targeting (IT) policy framework, have taken a keen interest in inflation expectations because of their important role in inflation dynamics. This newsletter presents an overview of the different BSP surveys on inflation expectations and highlights some key observations from the results of these surveys.
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CLIMATE CHANGE AND MONETARY POLICY: Some Preliminary Thoughts
Zeno Ronald R. Abenoja, Lara Romina E. Ganapin, Jean Christine A. Armas, Ranelle Jasmin L. Asi, and Dyan Rose L. Mandap
Abstract:
The existential risks associated with drastic climate change underscore the need for consensus- and broad-based policy actions from policymakers. While governments are the primary actors, central banks also play an important role in managing the impact of climate change, which affects their ability to deliver on their price and financial stability mandate. In this newsletter, we assess the potential impact of climate change on the conduct of monetary policy and how it can be integrated systematically into the current monetary policy framework of the Bangko Sentral ng Pilipinas (BSP).
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THE PHILIPPINE TOURISM SECTOR AMID THE PANDEMIC: Developments and Prospects
Kristhel Anne M. Caynila, Katherine T. Luna, and Sarah Amabelle A. Milla
Abstract: The COVID-19 pandemic heavily impacted high-contact industries such as travel and tourism. Given the significant contribution of the sector to the Philippine economy, this article looks into the impact of the pandemic on the demand for travel and tourism-related activities. The paper also discusses developments in the tourism sector over the past decade or so and its prospects over the near-term including measures pursued by the government to support its recovery from the health crisis.
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Keeping the Inflation Target Unchanged for 2022-2024
Sarah Jane A. Castañares
Abstract: During its annual review in 2021, the Development Budget Coordination Committee (DBCC), in consultation with the Bangko Sentral ng Pilipinas (BSP), approved to keep the inflation target unchanged at 3.0 percent ± 1.0 percentage point for 2022 to 2024. This article aims to explain the main considerations that the DBCC factored in the review of the said inflation target.
2021
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THINKING AI-HEAD: Exploring Machine Learning Applications in Central Bank
Rosemarie A. Amodia, Vidal Marvin C. Gabriel, and Cherrie R. Mapa
Abstract: This newsletter provides a layman's overview of machine learning (ML), including some sample use cases from different industries, including central banks. It discusses some of the early ML initiatives at the BSP which were designed to supplement and improve the current processes of the BSP in the areas of forecasting and banking supervision. Finally, the newsletter cites some of the challenges and opportunities in adopting ML-based solutions.
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Review of the BSP Early Warning System for Currency Crisis
Shirra Jazel L. de Guia and Paul Jan Patrick P. Natividad
Abstract:
Given the evolving macro-financial landscape, the BSP early warning system (EWS) model has to be revisited and reviewed to further enhance its predictive capacity. This article provides a brief overview of the existing EWS for currency crisis and reviews the leading indicators of the model. It likewise explores other performance measures to identify the best performing indicators for a currency crisis.
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Setting the Goalpost for Monetary Policy Amidst the Global Pandemic: A Review of the Inflation Target for 2021–2024
Sarah Jane T. Alarcon, Cherrie R. Mapa, and Mark Rex S. Romaraog
Abstract: The inflation target — since the adoption of the inflation-targeting framework by the BSP in 2002 — has served as an important guidepost for the BSP in its monetary policy formulation. However, the COVID-19 pandemic represents a considerable challenge, bringing into fore questions on the role of the inflation target in supporting economic stability during and after the pandemic. This article explains the process of setting the medium-term inflation target and the key factors considered in the determination of the inflation target for 2021 – 2024.
2018
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Sustaining foreign direct investments (FDIs) in the Philippines
Michael V. Bartolazo
Abstract: In light of the all-time high foreign direct investments (FDI) net inflows recorded in 2017, this newsletter discusses what FDIs are (i.e., definition, compilation, and data sources), its determinants, and how it contributes to economic growth. Equally important, the paper proposes reform measures to sustain these gains and help unlock the potential benefits of even more FDIs into the Philippine economy.
2016
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Deflation: The Flip Side of Inflation
Faith Christian Q. Cacnio
Abstract: This article provides a short overview of the concept of deflation or negative inflation rate. It addresses the question of why deflation, like inflation, may not be a good thing for the economy
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Balance Sheet Analysis: A New Approach to Financial Stability Surveillance
(January - February 2016)
Jean Christine A. Armas
Abstract: The world economy's history of financial and economic crises prompted policymakers to review the pitfalls of existing conventional tools and measures. It is in this light that new and unconventional analytical frameworks were recently thrust to the forefront of financial policy analysis. This paper discusses one such analytical tool, the balance sheet analysis framework, which examines the heterogeneity of economic sectors' financial positions.
2015
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Forecasting Inflation: A Disaggregated Approach Using ARIMA Models (March - April 2015)
Joan Christine S. Allon
Abstract: In the BSP, there are continuing efforts to develop and improve further its suite of economic models used for forecasting and policy analysis. This newsletter describes the semi-structural and seasonal Autoregressive, Integrated, Moving Average (SARIMAX) process used by the BSP to forecast the Consumer Price Index (CPI) and the inflation rate one- to three-months ahead by aggregating the forecasts of the individual components of the CPI.
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The Philippine Economy: Moving Ahead in 2015
(January - February 2015)
Faith Christian Q. Cacnio
Abstract: This newsletter article highlights some of the important developments that characterized the Philippine economy in 2014. It likewise provides a brief overview of what could be expected in 2015, including the risks and challenges that lie ahead.
2014
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Other Financial Corporations Survey (OFCS): Framework, Policy Implications and Preliminary Groundwork
(July - August 2014)
Jean Christine A. Armas
Abstract: The recent global financial crisis highlighted the importance of addressing information gaps in the financial sector, prompting the IMF to include the Other Financial Corporations Survey (OFCS) as a data category of the Special Data Dissemination Standard (SDDS) Plus. This article discusses the importance of the OFCS compilation, its preliminary framework and policy implications.
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Role of Trade Promotion Organizations and Their Contribution in Creating Linkages: The Philippine Case (May - June 2014)
Ivy G. Sabuga and Gabrielle Roanne L. Moral
Abstract: To address information asymmetry in cross-border trade, governments set up offices abroad such as diplomatic representations and trade promotion organizations (TPOs) to disseminate information on domestic products and inform foreign markets. This article discusses the positive externalities created by TPOs in the Philippines, particularly its contribution in creating linkages to expand trade, industries, and investments in the country.
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Surveillance of the Philippine Rice Market (March - April 2014)
Christopher John F. Cruz
Abstract: The Philippines is one of the world’s largest consumers of rice—the average Filipino consumes about 123 kilograms of rice per year, the sixth highest in the world. Given the significant share of rice to the Consumer Price Index (CPI), the rice industry is one of the key sectors being monitored by the Bangko Sentral ng Pilipinas. This article discusses the recent developments in the rice market, issues on self-sufficiency, outlook on prices, and the government's policy response to supply shocks.
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The Relationship of Monetary Policy to National Security (January - February 2014)
Roy R. Hernandez
Abstract: The concept of national security has evolved from a traditionalist state-centric concept to a more comprehensive one that includes economic security as an important dimension. Monetary and financial policies, which the Bangko Sentral ng Pilipinas (BSP) is mandated to implement, are necessary to promote economic security. This article provides a discussion on the relationship of monetary and financial policies to national security.
2013
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The Road Towards Retail Competition and Open Access (March - April 2013)
Maria Fe V. Reyes
Abstract: The key to the effectiveness of reforms in the electric power industry is the freedom of choice for all electricity end-users. This paper provides a discussion of the initial implementation of the Retail Competition and Open Access (RCOA), one of the reforms enacted under the Electric Power Industry Reform Act (EPIRA) to restructure the power industry, a scheme designed to promote greater competition and private sector participation. The Philippines’ readiness to shift to RCOA is also examined based on studies made by several institutions and agencies on the experience of countries with retail competition. There are a number of transitional issues (such as metering costs, stranded costs, switching of supplier) which is to be addressed in order for the RCOA reforms to bear fruit. Nevertheless, according to the DOE, a reduction in generation charges can be achieved once power supply is sufficient, and RCOA is fully implemented.
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The Financial Social Accounting Matrix: Evolution, Framework and Applications (January - February 2013)
Jean Christine A. Armas
Abstract: The development in the global financial architecture has highlighted the need for additional tools that will facilitate the analysis of financial transactions across the institutional sectors of the economy. One such tool is the Financial Social Accounting Matrix (FSAM). This paper discusses the FSAM as a tool that analyzes the structure of the economy by articulating in detail the sub-sectors of the financial sector as well as the financial transactions of all the institutional units that are carried out through the use of various financial instruments. The paper also discusses the importance of the analytical applications of FSAM in the BSP’s conduct of monetary policy.
2012
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Predicting the RP Sovereign Credit Rating: Has the Philippine Been Underrated (November - December 2012)
Cristeta B. Bagsic, Eufrocinio M. Bernabe, Jr.
Abstract: Despite the significant improvements in the Philippines' macroeconomic performance through 2002 to 2010, the country's credit ratings were even lower in 2010 than in 2002. In 2012, after several upgrades, the latest long-term foreign currency ratings are just even with those of ten years ago. By employing econometric and statistical methologies, this study intends to show that the Philippines' long-term foreign currency credit rating has been underrated.
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Central Bank Communication and the BSP's Monetary Policy Statements (September - October 2012)
Laura B. Fermo
Abstract: Several studies have shown that there has been a significant improvement in information disclosure of central banks over the last ten years, the most pronounced improvement of which has taken place particularly in the communication of policy decisions. Similarly, the BSP considers its monetary policy statements as integral to the inflation targeting process, and the most potent vehicle for communicating its monetary policy. The BSP hence ensures the absence of any transparency gaps by preparing a monetary policy statement that is clear, complete in content, appropriately structured and adequate in length, guided by a few basic principles.
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The European Turmoil and Its Impact on the Philippine Economy (July - August 2012)
Roy R. Hernandez, Ivy G. Sabuga
Abstract: Economists and policymakers are divided in their views as to what the reasons are behind the current European debt crisis. The depth of the complication and interrelatedness of the European turmoil have prompted serious thoughts about the effectiveness of policies designed to contain them. This paper provides a discussion on the divergent views on the origin of the European turmoil and proposed policy responses. Moreover, the paper discusses the potential impact of the European turmoil on the Philippine economy which could pass through possible spillover channels.
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A Note on the Use of the BSP Overnight Policy Rate as the Major Instrument of Monetary Policy (May - June 2012)
Jasmin E. Dacio, Eduard Joseph D. Robleza, Veronica B. Bayangos
Abstract: The very liquid global economic environment has prompted the increased use of reserve requirements (RRs) among emerging economy central banks, primarily as a less costly means of absorbing liquidity associated with increased reserve accumulation. Alternatively, increases in policy rates may also be utilized but may fail to constrain bank lending in the short run when the pass-through from the policy rate to market rates is weak. This paper argues that policy interest rates should continue to serve as the main instrument for signaling the monetary policy stance.
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Inflation Dynamics and Unemployment Rate in the Philippines (March - April 2012)
Faith Christian Q. Cacnio
Abstract: Developments in the labor sector, particularly the level of unemployment in the economy, are important to the conduct of monetary policy. Both theory and empirical evidence support the existence of a short-run tradeoff between inflation and unemployment. This newsletter provides a discussion on how the relationship between these two variables behaved over time in the Philippines and its implications on the conduct of monetary policy.
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The BSP's Shift to BPM6: What's in Store for Data Users (January - February 2012)
Ruth C. Gonzaga
Abstract: By June 2012, users of the Balance of Payments (BOP) and International Investment Position (IPP) data can expect some changes in the statistical reports that the Bangko Sentral ng Pilipinas generates. This is consistent with international best practice of implementing the Balannce of Payments Manual, 6th edition (BPM6), as revised by the International Monetary Fund (IMF) in 2008. This article discusses the major changes of the international accounts under the BPM6 framework.
2011
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Was it Supply? International Claims and Cross-Broder Lending to the Philippines During the Global Financial Crisis (November- December 2011)
Veronica B. Bayangos
Abstract: Understanding the economic drivers of international claims and cross-border bank lending to emerging market is key to analyzing financial vulnerabilities. However, one needs to consider a larger lending picture. This article examines the drivers of international claims and cross-border lending to the Philippines and the role of foreign banks during financial crises.
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An Assessment of the Transparency and Communication Practices in the Monetary Policy of the Bangko Sentral ng Pilipinas (September- October 2011)
Laura B. Fermo and Raquel A. Silva
Abstract: Most central banks, including the Bangko Sentral ng Pilipinas, consider transparency and communication as integral components of their monetary policy framework. Communication is in fact important not only as a means to convey information about monetary policy, but also as a policy tool for the central bank. This study aims to conduct an assessment of the BSP's current transparency and communication policies using the International Monetary Fund (IMF)'s Code of Good Practices on Transparency in Monetary and Financial Policies (TMFP Code) developed in 1999.
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Public Debt and Fiscal Consolidation (July- August 2011)
Roy R. Hernandez
Abstract: The recent global financial crisis has reduced productive capacities and therefore tax revenues, and at the same time has caused government spending to rise to record levels following the implementation of fiscal stimulus measures. This has also raised concerns about the debt sustainability of countries, particularly those mired in soaring sovereign borrowings. In this article, we look into the rudiments of public debt and the various measures adopted by monetary and fiscal institutions across countries to prevent the global economy from plunging into a wide-scale depression.
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Cluster Development Strategy in the Philippines (May- June 2011)
Laura L. Ignacio
Abstract: Industry cluster strategy occupies an important role in the government’s development plans. In the Philippine Development Plan (PDP) for 2011-2016, further development of industry clusters is included in the ten-point agenda, specifically, to increase productivity and efficiency of the industry and services sectors to enable them to contribute more to economic growth and employment. In this article, we look into the benefits and challenges of cluster development in the Philippines.
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Coping with Surges in Capital Flows: The Philippines Case (Mar- Apr 2011)
Gabrielle Roanne L. Moral
Abstract: The Philippines saw a resurgence in capital flows in the latter part of 2010. Two things are behind this occurrence: (i) the Philippines’ strength of recovery in 2010 and its upbeat growth prospects for 2011, and (ii) the uneven pace of economic rebound between advanced countries and emerging market economies (EMEs). To cope with capital flow surges, the BSP employs a menu of options that invloves the combination of regulatory reforms and pragmatic approach to monetary policy.
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Do Higher Wages Cause Inflation? (Jan - Feb 2011)
Faith Christian Q. Cacnio
Abstract: Does an increase in nominal wage cause price inflation? Or does the causality run the other way - price inflation causes wage inflation? These are questions faced by monetary authorities when looking at the relationship between changes in wages and in prices. In this article, we look into the economic theory behind this relationship and on the empirical evidence.
2010
2009
