A1670
Title: Relationship between money supply and other macroeconomic variables in the Philippines: A vector autoregression analysis
Authors: Rutcher Lacaza - University of the Philippines (Philippines) [presenting]
Barton Sy - TAT SING International Logistics Corporation (Philippines)
Abstract: Using quarterly data, a vector autoregressive (VAR) model was used to examine the relationship between money supply (M2) and other macroeconomic variables in the Philippines particularly, real GDP, inflation and interest rate starting at the period when the Bangko Sentral ng Pilipinas (BSP) formally adopted the inflation targeting framework in January 2002. Granger causality test, impulse response functions and variance decomposition were also implemented to analyze and uncover the impact of these macroeconomics variables on the money supply. After performing an empirical analysis, the result shows that a rise in the real GDP can cause an increase in the money supply; similarly, a rise in the inflation rate can result to an increase in the money supply; conversely, a rise in the interest rate can lead to a decrease in the money supply. Shocks on the significant macroeconomic variables have a significant effect on money supply at certain periods. The variance decomposition of all models shows that a significant proportion of the movements in money supply is due to shocks on the other variables especially at short horizons. The results suggest that policy makers in the Philippines can have a better control of money supply by adjusting the real GDP, inflation rate and interest rate.
