The contribution of the output gap to the conduct of inflation targeting in the Philippines

Rj Angeles and Margot Aissa Tan
Additional contact information
Margot Aissa Tan: University of the Philippines School of Economics

Philippine Review of Economics, 2007, vol. 44, issue 1, 99-123

Abstract: This paper evaluates whether the inclusion of the output gap in the central bank's estimated reaction function would improve the conduct of inflation targeting in the Philippines. A reduced-form vector autoregression model was constructed using exchange rate, output gap, inflation, and interest rate as the relevant variables. The authors use two measures for the short-term interest rate: the reverse repurchase rate and the T-bill rate. Results from counterfactual simulations show that the adoption of a Taylor-type rule, which involves the use of the output gap, minimizes the deviations of inflation from its target. Based on the empirical results of this study, the inclusion of the output gap is significant in terms of its contribution to maintaining inflation at a level that is nearer to the desired target. It is recommended that further studies consider the use of output gap estimates derived from other procedures, especially those that employ Markov-regime switching techniques, which could account for shocks in the economy. In addition, the use of alternative model-representations for the Philippine economy within which counterfactual simulations may be performed is recommended as an area for future research.

Keywords: inflation; inflation targeting; monetary policy (search for similar items in EconPapers)
JEL-codes: E58 (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://pre.econ.upd.edu.ph/index.php/pre/article/view/220/637 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:phs:prejrn:v:44:y:2007:i:1:p:99-123

Access Statistics for this article

More articles in Philippine Review of Economics from University of the Philippines School of Economics and Philippine Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by HR Rabe ().