Open AccessPolicy responses to shocks and monetary effectiveness under inflation targeting: The Philippine case
Author(s) -
Margarita Debuque-Gonzales
Publication year - 2021
Publication title -
thephilippine review of economics/the philippine review of economics
Language(s) - English
Resource type - Journals
eISSN - 2984-8156
pISSN - 1655-1516
DOI - 10.37907/7erp0202d
Subject(s) - monetary policy , economics , exchange rate flexibility , inflation targeting , monetary economics , vector autoregression , inflation (cosmology) , structural vector autoregression , macroeconomics , exchange rate regime , physics , theoretical physics
This article examines how monetary policy responses to economic shocks and monetary policy effectiveness have changed in the Philippines since inflation targeting was implemented in 2002. The study makes use of a structural vector autoregression to estimate financial and monetary policy shocks, among other shocks, based on an identification strategy similar to Gilchrist and Zakrajsek [2012] and Bassetto et al. [2016]. A Philippine financial conditions index (FCI) purged of monetary influences then decomposed according to instrument or market is used to aid estimation and analysis. Results of the recursive vector autoregressions (VAR) comparing pre-inflation-targeting and inflation-targeting periods reveal stronger and more systematic policy responses to non-financial demand shocks, partial and transitory accommodation of supply shocks, and greater exchange rate flexibility initially under the new monetary policy regime. There is, however, an observed weakening of monetary policy responses to financial disturbances and monetary policy transmission to growth likely related to episodes of strong capital inflows.