The Philippine reserve system: Factors that affect the reserve requirement rate on savings deposits-a time series analysis covering the period 1973 to 1992

Date of Publication

1994

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Commerce Major in Management of Financial Institutions

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management

Abstract/Summary

Statement of the ProblemThere are three major instruments of monetary policy: open market operations, discount rate policy, and the reserve requirements policy. This study focuses on the legal reserve requirements imposed on commercial banks' savings deposits. Legal reserve requirements are set in order to allow the central bank to control the money supply. That is, by setting reserve requirements well above the level that banks themselves desire, the central bank can determine the exact level of reserves and can thereby control the money supply more precisely (Samuelson and Nordhaus).Several factors affect the reserve requirement rate. The most dominant factors are interest rates, liquidity, foreign exchange, and inflation. In this regard, a question has been raised: (i) what are the levels of significance these factors have on the RR rate? Handling this type of problem would naturally require a model that could simultaneously capture the major relations between RR and the factors previously mentioned.Research DesignTo find out the levels of significance of these variables (interest rates, liquidity, foreign exchange, and inflation) on the RR rate, the proponents made use of the Time-Series-Package (TSP) Model version 5.1. TSP is a computer program which provides easier calculation.One of the outputs of the multiple linear regression model used (TSP) is the Durbin-Watson test which tests for the presence of autocorrelation between the variables. Other statistical tools derived from this program are the F-statistic (tests the significance of the regression as a whole), T-statistic (used to test the significance of the independent variables), and the R-squared (a measure of a proportion of variations in the independent/explanatory variable.

Summary of Findings Based on the statistical tests conducted by the proponents to determine the relationship and level of significance each of the mentioned independent variables with respect to the dependent variable, the following results were derived:1. Inflation, domestic liquidity, and foreign exchange are positively correlated with the reserve requirement rate.2. Real T-bill interest rates are negatively correlated with the RR rate.3. The best-fit linear regression model showed that of all the independent variables considered, interest rates proved to be most significant.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU06670

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

80 numb. leaves

Keywords

Monetary policy; Bank reserves; Banks and banking, Central; Deposit banking; Savings accounts; Security reserve requirements

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