Philippines: Preparations for Inflation Targeting, Issues 2001-2099
International Monetary Fund, Asia and Pacific Department, Aug 1, 2001 - Business & Economics - 19 pages
The Philippines is planning to shift toward adoption of an inflation targeting framework in 2001. This paper reviews key policy issues in this context, describes various operational and technical preparations, and presents an empirical analysis of the factors driving inflation. Among the key policy requirements, while central bank independence appears assured, the exchange rate has been allowed to fluctuate largely freely, and the authorities are embarking on a medium-term plan for fiscal consolidation. Empirical results suggest that the effective exchange rate (rather than a bilateral rate) and wages are important long-run influences on inflation.
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adjusted agricultural products Asian crisis bilateral exchange rate BSP's central bank Chi-Squared Test conduct of monetary Consumer Price Index core inflation domestic and external effective exchange rate Equation 4a equation model error-correction model escape clauses Estimated Coefficient Estimated Cointegrating Vector exchange rate measure export weighted F-test fiscal consolidation food prices implement import import-weighted effective exchange Import-weighted foreign prices Index Estimated Cointegrating inflation outlook inflation reports interest rate Lags Maximum eigenvalue long-run homogeneity Long-Run Results macroeconomic Maximum eigenvalue test monetary policy variables NEER nominal effective exchange Nonfood Consumer Price nonfood inflation nonfood price null hypothesis operational details overall CPI percent increase percent level Philippine policy action preparing for inflation Price Index Estimated rate and foreign reforms reserve money Sample period Second lag shift to inflation short-run Third lag tolerance interval Trace Test trade weights transmission mechanism transparency and accountability U.S. dollar unit labor cost Unit Roots unrestricted model