Transcript No Slide Title

The BSP’s Structural
Long-Term Inflation
Forecasting Model for the
Philippines
Bangko Sentral ng Pilipinas
Objectives of the BSP’s
Macroeconometric
Modelling Efforts
 To construct a structural long-term annual macromodel of
the Philippine economy that will serve as a quantitative
tool of the BSP to forecast headline and core inflation rates
one to two years in the future;
 To analyze the impact on headline and core inflation of key
factors such as the exchange rate, world oil price, interest
rates, wages, government borrowing and other relevant
variables;
Bangko Sentral ng Pilipinas
Objectives…cont’d
 to determine the effectiveness of different channels and
instruments of monetary policy, with special attention to
the impact of changes in the BSP’s policy levers, namely,
the short-term borrowing and lending rates
 to guide monetary authorities in their decision making
process pertaining to the appropriate policies for the
attainment of the BSP’s primary mandate of promoting
price stability conducive to balanced and sustainable
economic growth
Bangko Sentral ng Pilipinas
Main Characteristics of the
BSP MacroModel
 Partitions the Philippine economy into seven major
blocs:
Price
Bloc
Expenditure
Bloc
Production
Bloc
BOP
Bloc
Labor
Bloc
Monetary
Bloc
Fiscal
Bloc
Bangko Sentral ng Pilipinas
Complete Version of the BSP
MacroModel
Count of Equations
BLOC
Behavioral Identities
Expenditure
Monetary
Fiscal
Price
Labor
Production
BOP
TOTAL
Bangko Sentral ng Pilipinas
Total
9
9
4
12
1
1
2
10
11
6
6
3
1
3
19
20
11
18
4
2
5
38
40
78
Flowchart of the BSP’s
Structural
Long-Term Inflation
Forecasting Model
Bangko Sentral ng Pilipinas
PRODUCTIVITY
UNEMP
RATE
LFPR
POPULATION
LF
Employment
GDPPROD
WAGES
PGDP
CPIFUEL
CPIRICE
NFIA
GNP
GDP
CPICORE
STAT
DISC
GDPEXP
STOCKCAP
CPI
ER
Consumption
POIL$
IMPLICIT
PRICE
DEFLATORS
BOP
M3
Reserve
req’ts
OMO
Onite
RRP rate
P/$ ER
Bangko Sentral ng Pilipinas
Investments
World Trade
Gap
World Prices
Exports/Imports
TBILL91
RATE
LIBOR90
X-M
CREDIT
PRIV/PUB
Budget
Govt
Rev/Exp
Govt
Main Characteristics…cont’d
 Provides more detail in the determination of
prices in the economy
CPI = .1840 CPIFOOD + .0574 CPIFUEL
+ .7586 CPICORE
Bangko Sentral ng Pilipinas
Main Characteristics…cont’d
 Explicitly incorporates the BSP’s policy
levers, namely:
 the overnight interest rate on RRP’s
 statutory reserve ratio requirements
 liquidity reserve ratio requirements
Bangko Sentral ng Pilipinas
Transmission Mechanism
BSP
Policy
Levers
Money
Multiplier
Base
Money
Core
and
Headline
Inflation
Wages
Employment
Output
Bangko Sentral ng Pilipinas
Flowchart
of the
Monetary Bloc
Bangko Sentral ng Pilipinas
TBILL91
PGDP
REGS
RESPOS
CPE
M3
LIQRES
BM
RDEPOSIT
RM
MM
RR
GDP
NFABSP
NDABSP
BOP
Budget
CPS
Public
Credit
Private
Credit
Other NDA
Public
Investment
Private
Investment
OMO
BSP Tbills
RLR
LDR
Bangko Sentral ng Pilipinas
RRPS
O-NITE
SDA
Rest of
Priv Credits
Others
Modelling the Transmission
Mechanism of Monetary Policy
1.
RRPS/TD = ƒ{(RONIGHTRRP – RLENDING)**,
[DLOG(STOCKPRICE)]**, LIBOR90**, D96**,
D97**, Y2K**}
2. OMO = BBILLS + SDA + BSPTBILLS + RRPS +
OMOTHER
3. NDABSP = OMO + NGDEPOSIT + NDABSPOTHER
4. RM = NFABSP + NDABSP
Bangko Sentral ng Pilipinas
Modelling the Transmission Mechanism of
Monetary Policy, cont’d
5. BM = RM + LIQRES + REGS + RESPOSITION
6. MM = (1 + CDR) / (CDR + RDR + (CASHINVDMB
/ TD) + LDR + ((REGS + RESPOSITION) / TD))
7. M3 = MM*BM
8. TBILL91 = ƒ{[LOG(M3(-1)/PCPI(-1)/100)]*,
LOG(GDP), [(DLOG(PCPI)*100)]**,
RONIGHTRRP**, LIBOR90**, BALNG_NEW**}
Bangko Sentral ng Pilipinas
Modelling the Transmission Mechanism of
Monetary Policy, cont’d
9.
LOG(IP) = ƒ{DLOG(GDP(-1)**, [(TBILL91 (-1) – PCPIINF(-1)]*,
BOPCAPBALN$(-1)**, (CREDITPRIV/PGDP)**, (ER/PGDP)**}
10. COMPNAGRIPCT = {UNEMPRATE**, PGDPINF(-1)*}
COMPNAGRI = COMPNAGRI(-1)*(1 + (COMPNAGRIPCT/100))
11. DLOG(PIFC) = ƒ{DLOG(PMCAP)**, [BALNG_NEW(-1)/GDPN(1)]**, [DLOG(PGDP(-1)]**, (TBILL91-PGDPINF)**,
DLOG(PCPIFUEL)**, D99**}
12. DLOG(PGDP) = ƒ{[DLOG(COMPNAGRI*NEMPFTE/GDP)]**,
DLOG(PIFC*KAPITAL/GDP)**, LOG(ER*POIL$*MFUEL/GDP)**,
D84**, D92**}
Bangko Sentral ng Pilipinas
In-Sample Forecasting
Performance of the Model
Statistics used:
Mean absolute error:
MAE = (1/n)  P - A
Mean absolute percent error:
MAPE = (1/n)  (P – A)/A*100
where:
A = actual value
P = predicted or simulated by the model
n = number of periods covered by the
simulation.
Bangko Sentral ng Pilipinas
Error Statistics
Static Simulation, 1988-2001
MAPE
Base Money
Wage (COMPNAGRI)
Private Consumption
GDP
Total Investment
Imports
M3
Exports
GDP Implicit Price Index
91-day T-bill
Inflation Rate
Unemployment Rate
Bangko Sentral ng Pilipinas
MAE
3.8
2.5
1.0
1.2
5.0
1.8
4.4
2.8
1.6
0.8
1.2
0.7
Simulation Exercises
 Impact of a sustained one-percentage
point shock the RRP Rate
 Impact of a sustained one-percentage
point reduction in the volume of trade
Bangko Sentral ng Pilipinas
Impact of a Sustained One-Percentage Point Shock
Impact of a Sustained One Percentage Point Increase in the
in the
RRPImpact
Rate: Relative
Changeto
Relative
to Baseline
RRP
Rate:
the Baseline
0.4
-
Percent
0.0
-0.4
-0.8
-1.2
-1.6
90
91
92
93
94
95
96
97
98
99
GDP growth
Inflation (percentage point)
M3
Investment
Tbill 91-day (percentage point)
Bangko Sentral ng Pilipinas
00
01
Impact
of a Sustained One-Percentage Point Reduction
Impact of a Sustained One Percentage Point Decease in the
of W orld
Trade: Change
Impact Relative
to to
Baseline
in Volume
the Volume
of Trade:
Relative
Baseline
0.4
-
percent
0.0
-0.4
-0.8
-1.2
-1.6
90
91
92
93
94
Exports of goods
GDP growth
Bangko Sentral ng Pilipinas
95
96
97
98
99
00
01
Inflation (percentage point)
Investment
Thank you!
Website: www.bsp.gov.ph
E-mail:
[email protected]
Bangko Sentral ng Pilipinas