The convergence of accounting and economics: A causal analysis of the relationship between exchange rates and the balance of payments of the Philippines and developed countries

• Main Authors: Favorada, Immy Felyss G., Reinante, Czarina Viele G., Thai, Jemimah S., Tsai, Kervin Kenrich S.
• Format: text
• Language: English
• Published: Animo Repository 2015
• Subjects: Foreign exchange rates > Philippines; Balance of payments > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/7760
• Institution: De La Salle University

With the rise of globalization, understanding international exchanges and transactions has become a necessity. Due to this, there came a need for a standard recording procedure for international transactions between economies which prompted governments to adopt basic accounting procedures to monitor international economic activities. With this, the research explores the applications of accounting standards in a countrys economic matters, and examines the relationship of exchange rates and the national balance sheet accounts. This study subjects previous studies’ claimed relationship between the said variables to weak and strong tests for causality to determine whether a causal relationship between the two may be established. The weak test is done by implementing the propensity score matching technique which allows the group to mimic experimental measures by constructing a counterfactual. Meanwhile, the strong test is done through the dose response technique which can measure the effects of an increase in changes in exchange rate to the changes in a country’s balance of payments position. For this study, the group utilizes a quarterly time-series data of the Philippines from 1999 to 2015 and a 2012 cross-section data of developed economies from the Bangko Sentral ng Pilipinas and Bloomberg, respectively. The results show that there exists a significant causal relationship between exchange rate and the national balance sheet accounts, and that such relationship is non-linear it tapers off, strengthens or stays the same after a certain level of exchange rate fluctuation.