Determinants of short-term interest rates in the Philippines : (an application of sargent's loanable funds model)

Janone K. Ong

Date of Publication

1999

Document Type

Master's Thesis

Degree Name

Master of Science in Economics

Subject Categories

Econometrics | Economic Theory | Growth and Development

College

School of Economics

Department/Unit

Economics

Thesis Adviser

Cesar C. Rufino

Defense Panel Chair

Joel Tanchuco

Defense Panel Member

Neriza M. Delfino
Eduardo Noel, Jr.

Abstract/Summary

This paper investigates the effect of government deficit, inflation expectations, change in money supply, level of income, and the changes in the level of income, to the level of nominal short-term interest rates in the Philippines. Sargent's Loanable Funds Model was used as the initial model for interest rates in the Philippines. Using unit root test and cointegration studies, inflation expectations and government deficits appeared to be the long-run determinants of interest rates. Test for structural breaks using Chow's test revealed that there was no structural break in the year 1986, which was believed to be the turning point for interest rate liberalization in the country. The study also showed that uncertainty, represented by a dummy variable, played a significant part in the movement of interest rates. To determine the effect of expectations on interest rate, an adaptive expectations model was used, where interest rate expectation is expressed as a distributed lag of the current rate. The exercise revealed that a one quarter lag on interest rate, inflationary expectations and uncertainty were the main determinants of short-term interest rate in the Philippines.

Abstract Format

html

Language

English

Format

Print

Accession Number

TG02894

Shelf Location

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

Physical Description

107 leaves

Keywords

Determinants; Interest rates -- Philippines; Econometric models; Loans; Finance; Public

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