Browsing by Author "Dela Cruz, Marphil A."
Now showing 1 - 1 of 1
Results Per Page
Sort Options
Item Restricted An optimal taylor rule for the Philippines: a macro-econometric optimization problem in an inflation -output variability tradeoff(2011-10) Dela Cruz, Marphil A.This paper presented an optimal monetary policy for the Philippines in Taylor rule form relevant to the period 2002 to 2009 given a choice between inflation and output variability. A macroeconomic model composed of inflation and output gap equations using empirical data from 1980 to 2009 were estimated. A loss function representing the central bank utility in relation to output-inflation variability trade-off was specified. The process was started by setting the coefficients in the loss function that have direct repercussions regarding the importance placed between output and inflation stability. Results showed that for every percentage point the Bangko Sentral ng Pilipinas (BSP) foresees inflation next year to deviate from the target, ceteris paribus, interest rate should be increased by .7607 percentage point during the present year no matter what the current output gap is. By lowering interest rate, BSP would be able to raise output above its normal level, which causes an upward pressure on prices. On the other hand, efforts to tame inflation through interest rate may lead to more output instability. The interest rate smoothing behavior ofBSP was shown to be a constraint in terms of the degree up to which inflation or output can be stabilized.