An analysis of the structure and dynamics of the Philippine macroeconomy: Results from a DSGE-based estimation

College

Ramon V. Del Rosario College of Business

Department/Unit

Economics

Document Type

Article

Source Title

DLSU Business and Economics Review

Volume

23

Issue

2

First Page

1

Last Page

47

Publication Date

2-4-2014

Abstract

I 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. I 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, I 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. Shock decomposition analysis also reveals that BSP's conduct of monetary policy appears to be more procyclical than countercyclical, for example, during the recent global financial and economic crisis. © 2014 by De La Salle University, Manila, Philippines.

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Disciplines

Economics

Keywords

Monetary policy--Philippines; Philippines--Economic conditions; Macroeconomics; Equilibrium (Economics); Bayesian statistical decision theory

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