The BSP’s monetary policy reaction function from 1992 to 2003

John Michael Ian S. Salas


This paper attempts to empirically determine the Philippine central bank’s recent monetary policy stance before and after it adopted the inflation-targeting framework, as revealed by its interest-rate setting behavior. Employing Clarida, Galí, and Gertler’s [1998, 2000] forward-looking model, it finds that the Bangko Sentral ng Pilipinas (BSP) has indeed been stabilizing inflation by and large through its key policy rate, although it appears to be accommodative with respect to the output gap. In addition, currency stability and expansionary money supply (M1) growth are other concerns of the BSP, although significantly so only in earlier periods.


JEL classification: E52, E58


inflation targeting; Taylor rule; monetary policy reaction function; stabilization; interest-rate setting

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