THE Bangko Sentral ng Pilipinas (BSP) announced last Thursday it has recently adopted a new policy analysis model for the formulation of monetary policy decisions and forecasts in the country.
In a virtual briefing on, BSP governor Benjamin Diokno said the new framework, called Policy Analysis Model for the Philippines (PAMPh) is a re-specified and recalibrated version of the currency Macroeconomic Model of the Philippines (MMPH), developed in partnership with the International Monetary Fund.
Among the updated features incorporated into the PAMPh are the disaggregation of headline inflation into its core, food and energy components to more adequately capture the demand and supply sources of inflation and the inclusion of business process outsourcing (BPO) receipts and Overseas Filipinos remittances as drivers of aggregate demand and exchange rate.
The BSP said the PAMPh also includes a re-definition of the structure of interest rates based on the policy rate and market rate to ensure a more representative transmission of monetary policy to the economy and the re-definition of the real exchange rate relative to the US Dollar as the trade-weighted real effective exchange rate.
Diokno said these refinements are intended to “improve the representation of key dynamics of the Philippine macroeconomy: in the model and in turn better aid the BSP’s policy analyses.
“The PAMPh, which is a key element of the BSP’s suite of forecasting models, is fully operational. The results of the forecasting exercises using this model are submitted to the Monetary Board for consideration during monetary policy meetings,” BSP Governor Benjamin E. Diokno said.
“The model focuses on key macroeconomic relationships that are most relevant for monetary policy, and can generate a medium-term policy rate path consistent with the achievement of the Government’s inflation target. This makes the PAMPh a useful guide for monetary policymaking,” the governor added.
The governor said that monetary policy decisions in this model are based for the most part on the evolution of inflation expectations and the inflation target.
It also captures three transmission channels of monetary policy including the following: interest rate channel; exchange rate channel; and, the expectations channel.
“The BSP continues to upgrade its analytical capability, in large part, through the development of models that support a disciplined and well-informed formulation of monetary policy,” Diokno said.