CAUSALITY ANALYSIS OF MONEY AND INFLATION IN THE PHILIPPINE ECONOMY: EVIDENCE FROM THE PERIOD 1960 TO 2020
Abstract
This work aimed to investigate the causal relationship between money and inflation (proxy by CPI) in the Philippines using Vector Autoregressive (VAR) Analysis and the Granger Causality Test. The results showed that both series are stationary in levels; hence, VAR in levels was utilized. The results of VAR(2) show a link between the two variables. The current inflation rate in the Philippines is affected by a one-year lag in money supply. The Granger causality test revealed the unidirectional connection between inflation and money. Furthermore, past levels of price stability can be used to forecast monetary stability in the Philippines. Technically, CPI Granger causes M2.
JEL: E31, E52, C32, C53, C58
Article visualizations:
Keywords
Full Text:
PDFReferences
Anderson, R.B., W.A. Domberger, and G.E. Makinen 1988. “The Demand for Money, the Reform Effect, and the Evidence from Greece and Hungary II Reexamined”. Journal of Money, Credit and Banking, 20 (4): 653-72.
Bangko Sentral ng Pilipinas 2011. “BSP and Price Stability: Inflation Targeting”.
Bangko Sentral ng Pilipinas (BSP). (2022). Philippine Financial System Stability Report 2022.
National Economic and Development Authority (NEDA). (2022). Philippine Development Plan 2023-2028.
Baunto, A.L., C. Bordes, and S. Maveyraud 2011. “Money Growth and Velocity with Structural Breaks: Evidence for the Philippines”. Philippine Management Review Special Issue, Vol. 18, pp. 71-81.
Bayangos, V.B. and I.T. Estigoy 2010. “A Geometric Price Index for the Philippines: A Preliminary Assessment”. BSP Working Paper Series No. 2010-01.
Beltas, A. and T. Jones 1993. “Money, Inflation, and Causality in a Financially Repressed Economy: Algeria, 1970-1988”. Applied Economics, 25: pp. 473-480.
Benbouziane, M. and A. Benamar 2004. “The Relationship between Money and Prices in the Maghreb Countries: A Cointegration Analysis”. The 11th Annual Conference of the Economic Research Forum (ERF) Beirut – Lebanon – December 16-28, 2004.
Bernanke, B. S., Olekalns, N., & Frank, R. G. (2017). Principles of macroeconomics. McGraw-Hill Education.
Blanchard, O. J., & Johnson, D. R. (2013). Macroeconomics. Pearson.
Browne, F. and D. Cronin 2007. “Commodity Prices, Money and Inflation”. Working Paper Series No. 738.
Case, K. and R. Fair 2002. “Principles of Macroeconomics”. Prentice Hall Inc. Upper Saddle, New Jersey.
Chimobe, O.P. and U.C. Uche 2010. “Money, Prices and Output: A Causality Test for Nigeria”. American Journal of Scientific Research ISSN 1450-223X, Issue No. 8, pp. 78-87.
Dornbusch, R. 2001. “Principles of Economics”. International Edition. McGraw-Hill Higher Education, New York
Dwyer, G.P. and R.W. Hafer 1999. “Are Money Growth and Inflation still related?” Federal Reserve Bank of Atlanta, Economic Review 2nd Quarter.
Ghazali, M.F., H. Amin, M.Z. Muhammad. and S.H. Samsu 2008. “Linkage between Money and Prices: A Causality Analysis for Malaysia”. International Business Research, Vol. 1, No. 4.
Gochoco-Bautista, M. S. 2006. “An assessment of the usefulness of money for policy in the Philippines”. Asian Economic Papers, 5.
Guinigundo, D.C. 2009. “Measurement of Inflation and the Philippine Monetary Policy Framework”. BSP Economic Newsletter, No. 09-04.
Hossain, A. 2005 “The Sources and Dynamics of Inflation in Indonesia; an ECM Model Estimation for 1952-2002”. Applied Econometrics and International Development Vol. 5- 4
Hossen, Md. Shajalal, and Md. Ashraful Hoque (2022) "View of Causal Relationship of Money Supply and Inflation: A Study of Bangladesh." International Journal of Business and Management Review 5.4 (2022): 1961-1970.
International Monetary Fund (IMF). (2022). Philippines: 2022 Article IV Consultation - Staff Report.
Lahiri, A.K. 1991. “Money and Inflation in Yugoslavia”. IMF Staff Papers, 38(4): pp. 751-788.
Lim, J. 2006. “A Review of Philippine Monetary Policy towards an Alternative Monetary Policy”. 3-D 12th St., New Manila, Quezon City 1112 Metro Manila, Philippine
Lim, G.C. (1987). The relationship between money supply growth and inflation in the Philippines. Philippine Economic Journal, 36(1), 34-49.
Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.
Mishkin, F. S., & Eakins, S. G. (2015). Financial markets and institutions. Pearson.
Masih, R. and A.M. Masih 1996. “Macroeconomic Activity Dynamics and Granger Causality: New Evidence from a Small Developing Economy Based on a Vector Error-Correction Modelling Analysis”. Economic Modelling 13, pp. 407-426.
Mostafavi, S.M. 2007. “Causality between Money and Inflation in the Iranian Economy”. Quarterly Journal of Economic Review 4(3).
Neri, J. (2022). The Philippine economy in 2023: Challenges and opportunities. Philippine Institute for Development Studies Policy Notes Series No. 2022-01.
Otani, K. (1975). Inflation in an open economy: A case study of the Philippines. International Monetary Fund Staff Papers, 22(2), 428-453.
Pinga, V.E. and G.C. Nelson 2001. “Money, Prices and Causality: Monetarist versus Structuralist Explanations Using Pooled Country Evidence”. Applied Economics, 33 (10), pp.1271- 1281.
Perdices, E.V. (1996). Inflation and economic growth in the Philippines. Philippine Institute for Development Studies Discussion Paper Series No. 96-11.
Smith, B.D. 1984. “Money and Inflation in Colonial Massachusetts”. Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 8, No. 1, pp. 1-14.
Stiglitz, J.E. 1996. “Principles of Macroeconomics 2nd Edition”. W.W. Norton and Company, Inc., 500 Fifth Avenue, New York 10110
Tan, H.B. and A.Z. Baharumshah 1999. “Dynamic Causal Chain of Money, Output, Interest Rate and Prices in Malaysia: Evidence based on Vector Error Correction Modelling Analysis”. International Economic Journal Vol. 13, No.1.
Yap, J.T. 1996. “Inflation and Economic Growth in the Philippines”. Philippine Institute for Development Studies (PIDS), Discussion Paper Series No. 96-11.
DOI: http://dx.doi.org/10.46827/ejefr.v8i2.1653
Refbacks
- There are currently no refbacks.
Copyright (c) 2024 Jesson Rey F. Sabado, Mar Vincent M. Rebote, Jomarie A. Calipuzan, Ryan B. Perocho
This work is licensed under a Creative Commons Attribution 4.0 International License.
The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.
Copyright © 2016 - 2023. European Journal of Economic and Financial Research (ISSN 2501-9430) is a registered trademark of Open Access Publishing Group. All rights reserved.
This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.
