A study on the effects of fiscal and monetary policies and changes in oil prices on the economic growth in the Philippines using time series econometric methods

• Main Authors: Ang, Edwin H., Calingo, Juan Carlo F., Ong, Timothy S.
• Format: text
• Language: English
• Published: Animo Repository 2007
• Subjects: Petroleum products > Prices > Philippines; Economic development > Mathematical models; Fiscal policy > Philippines; Monetary policy > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/9576
• Institution: De La Salle University

Executive Summary. Several studies and empirical literature have been revolving in the recurrent theme suggesting that oil price shocks have a significant effect on economic activity. However, only a few studies took notice of the economic growth and oil price shocks in developing countries such as the Philippines. This paper examines the macro-economic performance of the Philippine economy in response to changes in the world oil prices, monetary, and fiscal policies during 1970 to 2005. This study is based on a simulation analysis using the St. Louis Equation. The study used the distributed-lag model, because previous studies have shown that the effects of oil price changes to output growth is delayed. The major findings demonstrate that there is an apparent long-run equilibrium relationship between oil price and economic growth after testing for the Johansen Cointegration Test, which was further reinforced by the Engle-Granger Test. Accordingly, the study found that oil price shocks in the country involves a lagged effect of 2 years. Further test results illustrate that oil prices have a one-way inverse relationship with output-whereby a substantial decrease in real output growth is attributable to an increase in the world oil price. Moreover, government expenditure and reserve money display insignificant values as determinants of output growth. The study also discovers a structural break during 1986 in the Philippines. The researchers recommend that cost-push inflation along with money supply should be taken into consideration because cost push inflation does not result form the basic increase in prices of products without increasing money supply.