Date of Award

5-7-2020

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Rodrigo Schneider

Abstract

This paper examines the recent conduct of monetary policy in the Philippines and the Bangko Sentral ng Pilipinas’ (BSP) interest rate setting behavior. In this paper, I use a standard open economy reaction function to see whether the BSP reacts more to changes in the inflation rate, exchange rate, and or the output gap. I find that in the Philippines, the interest rate responds strongly to exchange rates. Furthermore, interest rates are less consistently explained by inflation and more accurately explained by exchange rates. This tends to suggest that the BSP goes against its inflation targeting strategy and supports a stable exchange rate system. Evidence also suggests that the BSP’s response to core inflation is higher and more accurately explains the interest rate setting behavior. However, the relationship does not exceed that of changes in the exchange rate.

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