A semestral monetary submodel of the Philippine economy, 1967 to 1982
Date
1985
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Abstract
This study aims to investigate the behavior of the financial aggregates of the Philippine economy. The study is a semestral model which covers the years
1967 to 1982.
The theoretical framework utilized is that of portfolio choice. Each of the three sectors identified --- individual, commercial bank, and the monetary authority --- are deemed to be rational and maximizes its own utility. The interplay of portfolio choice among the units leads to the formation of total liquidity and credit in the economy. Moreover, the interaction of the three markets--- deposits, credit, and money--- determines an equilibrium point within the financial system given their respective demand and supply components.
Financial aggregates are grouped into Savings, Demand, and Time Deposits and currency in circulation. The demand for each of these financial aggregates in real terms respond significantly to its own yield. All of the financial aggregates' demand. but currency in circulation' s demand are shown to be unresponsive to per capita income.
The supply for credit, on the other hand, is governed by the balance sheet constraint of the commercial banks. The variable in real terms verifies the availability doctrine.
The study, in its totality, provides a sound empirical framework for policy analysis and is open to refinement should new data become available. The model contains policy variables which makes multiplier analysis feasible. Moreover, the model provides a policy objective of containing inflation rate. And it is implied in the model that the pursuance of such a policy objective can be done via a single strategy which combines the intermediate target regime and the flexible exchange rate regime.