When the giants sneeze: a study on the international monetary policy spillovers in the Philippines
Date
2023-07-05
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Abstract
In an increasingly interconnected global economy shaped by globalization, smaller economies like the Philippines face heightened vulnerability to the monetary policy decisions of larger economies. This paper aims to investigate the varying magnitude and dynamics of international monetary spillovers on the Philippines’ policy rate and whether there has been a structural change in the transmission process of
spillovers in the Philippines before and after the 2008 global financial crisis. Our primary focus is on the United States (US), Japan, and the People's Republic of China (PRC) because of their status as the Philippines' largest trading partners. Using OLS, Vector Autoregression (VAR), and Structural VAR (SVAR), our findings uncover distinct patterns in spillover effects. US policy rate shocks have a significant short-term impact on the Philippine policy rate, while Japanese policy rate fluctuations shape the Philippine policy rate over the long term. However, PRC policy rate shocks do not significantly
influence the Philippine policy rate. Nonetheless, we find that only monetary shocks from PRC, through its policy rates, significantly affect Philippine exchange rates. We also identify a structural shift in spillover transmission following the 2008 global financial
crisis from the US and Japan. By providing comprehensive insights into the differential
effects of international monetary shocks, our research can equip policymakers with
valuable information to better understand and manage spillovers, hopefully helping them
to formulate more effective monetary policies and promote economic stability in an
interconnected global financial landscape.
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Keywords
international policy, international monetary policy spillovers, Philippines, United States, Japan, People’s Republic of China