The impact of exchange rate fluctuations on output and employment in the Philippines
Date
2007-04
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Abstract
This paper aims to examine the impacts of exchange rate fluctuations on output and employment in the Philippines. The unit of analysis is the industry level to find out whether output and employment of industries adjusts to the fluctuations in the peso and at the same time distinguish which industries respond to exchange rate movements. We use a simple model of supply and demand that adequately captures external shocks to estimate the responses of output and employment to exchange rates. The variable for exchange rate used is the value of real effective exchange rates. Quarterly data are used in the estimations, covering two different periods- 1988:1 to 2002:1 for output and 1988:1 to 2004:1 for employment. Estimates on output and employment include six industries classified according to origin. We find that exchange rate movements have significant effects on the output of three sectors: electricity, gas and water, construction, and trade. Results in the employment regressions show that employment in manufacturing, electricity, gas and water, construction, wholesale and retail trade, transportation, storage and communications, and finance are responsive to the changes in the level of exchange rates. As the real exchange rate increases, employment in the industries is also increased.
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Keywords
Exchange rate, Fluctuation, Employment, Fluctuations impact, Labor market, Labor force