BAGUIO CITY (PIA) — The Bangko Sentral ng Pilipinas (BSP) introduces its new workhorse model, providing information on the factors that influence its monetary policy actions and inflation outlook.
The BSP’s Department of Economic Research (DER) conducted a briefing on the Policy Analysis Model for the Philippines (PAMPh) at the BSP North Luzon Regional Office here on Tuesday (Sept.3, 2024.).
As an inflation-targeting central bank, the BSP’s forward-looking and data-driven monetary policy decisions are based largely on its forecasts for inflation and other key macroeconomic variables over the policy horizon.
BSP North Luzon Regional Director Noel Neil Malimban said the PAMPh is a product of a two-year International Monetary Fund Institute for Capacity Development beginning in March 2022 and completed in March 2024.
“Traditional macroeconomic models have been our primary tools for understanding and predicting the economic trends, but like an aging car, these models have begun to show their limitations. Unlike the current macro model, the PAMPh features an endogenous monetary policy rule that responds to the deviation of inflation from the target and output gap as well as model consistent expectations that are both forward and backward looking,” Malimban said.
“The new model is a departure from the conventional. It is a new semi-structural gap model that focuses on key macroeconomic relationships that are most relevant for monetary policy formulation,” he added.
Malimban said the BSP has been testing the model, gathering feedback and comments from various stakeholders to ensure an adequate forecast. The PAMPh is part of BSP’s suite of forecasting models. It integrates near-term forecasts with expert judgment to provide a coherent outlook on the Philippine economy. Its key feature is the inclusion of an endogenous monetary policy rule, which responds to deviations of inflation from the target and the output gap. This forward-looking policy rule helps central banks analyze the effects of different policy paths and corresponding policy trade-offs, taking advantage of the internal consistency and theoretical coherence of the model.
Economic and Financial Forecasting Group Bank Officer V Sarah Jane Castañares said the BSP aims to adopt the PAMPh as its workhorse model in 2025 because it is in line with the best practice in inflation-targeting central banks; it allows for a systematic, internally consistent, and economically coherent analysis of current and future economic conditions; it is a pragmatic and practical tool for forecasting and simulation of key policy issues; and it supports communication of forward guidance, helping to anchor inflation expectations.
The DER team presented the model features and how it can be used to analyze economic policies, analyze risks, and guide monetary policy decisions.
Real and External Sectors Research Group Bank Officer V Abigael Ilagan provided an update on the recent economic developments, while Economic and Financial Forecasting Group Deputy Director Jasmin Dacio discussed the key features of the benefits of PAMPh 2.0.
The briefing was attended by representatives of various government agencies, the private sector, and the academe in the Cordillera and Regions 1, 2, and 3. (DEG, PIA-CAR)
