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The objective of this paper is to estimate a structural model of the Philippine economy using vector autoregression (VAR) methodology. The structural model being estimated is a traditional Keynesian AS-AD model of macro-economic fluctuations. This model predicts that in the short-run, transitory shocks (in the structural VAR model), interpreted as aggregate demand shocks, move output and prices in the same direction and are neutral with respect to output in the long-run, but affect prices.
Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.
Our answer: Not so well. We reached that conclusion after reviewing recent research on the role of technology as a source of economic fluctuations. The bulk of the evidence suggests a limited role for aggregate technology shocks, pointing instead to demand factors as the main force behind the strong positive comovement between output and labor input measures.
The objective of this paper is to analyze the dynamics of business cycle features and investigate the main source of macroeconomic fluctuations in Vietnam, and then make comparison to Indonesia and the Philippines. In the first task, the business cycle features are evaluated by properties of data, including volatility, persistence and co-movement after taking Hodrick-Prescott (HP) filter in 2 periods: before and after the global financial crisis in 2008. Results indicate that these properties mostly concentrate on second period (2008-2013) in Vietnam, whereas the Asian Financial Crisis leads to a high volatility and persistence in Philippines and Indonesia. In order to identify the sources of macroeconomic fluctuations, the study adopts the Structural Vector Autoregression (SVAR) with data covered from 1996 to 2013. The evidence for countries suggests that (i) the main source of output variance is domestic supply shocks but there is a significant decrease in long-run; (ii) The fluctuations of trade balance are mostly due to external shocks, especially term of trade shocks in Vietnam, as opposed to Philippines and Indonesia where IS shocks play an important role; (iii) The fluctuations of real exchange rate are mainly driven by the domestic shocks but internal causes of each country are different; (iv) the most two important sources of price's movements are domestic shocks, especially IS and nominal shocks in Vietnam.
Inflation rates rose sharply in the Philippines during 2018. Understanding the demand and supply sources of inflation pressures is key to monetary policy response. Qualitatively, indicators have pointed to evidence of inflation pressures from both sides in 2018, with the supply factors, by and large, associated with commodity-price shocks and demand factors deduced from gleaning at the wider non-oil trade deficits seen in the Philippines. Quantitatively, we deploy a semi-structural model to decompose the contributions of various shocks to inflation. Our main findings are (1) supply factors (mainly global commodity prices) played a prominent role in explaining the rise in inflation in 2018; (2) demand factors also contributed to inflation in a non-negligible way, justifying the need for tighter monetary policy in 2018; (3) the size of the estimated output gap (an important indicator of demand pressures) could be larger, when considering the widening trade deficits in 2018; and (4) a delayed monetary policy tightening can be costly in terms of higher inflation rates, requiring larger and more aggressive interest rate hikes to bring inflation under control, based on a counterfactual exercise.
Against the backdrop of the global financial crisis and rising food, fuel, and commodity prices, addressing poverty and inequality in the Philippines remains a challenge. The proportion of households living below the official poverty line has declined slowly and unevenly in the past four decades, and poverty reduction has been much slower than in neighboring countries such as the People's Republic of China, Indonesia, Thailand, and Viet Nam. Economic growth has gone through boom and bust cycles, and recent episodes of moderate economic expansion have had limited impact on the poor. Great inequality across income brackets, regions, and sectors, as well as unmanaged population growth, are considered some of the key factors constraining poverty reduction efforts. This publication analyzes the causes of poverty and recommends ways to accelerate poverty reduction and achieve more inclusive growth. it also provides an overview of current government responses, strategies, and achievements in the fight against poverty and identifies and prioritizes future needs and interventions. The analysis is based on current literature and the latest available data, including the 2006 Family Income and Expenditure Survey.
Technical Notes and Manuals are produced by IMF departments to expand the dissemination of their technical assistance advice. These papers present general advice and guidance, drawn in part from unpublished technical assistance reports, to a broader audience. This new series was launched in August 2009.