Credibility of the Philippine Central Bank: Evidenced by the Interest Rate Pass- Through
Keywords:Monetary Policy, Commercial Banks, Lending Rate, Interest Pass Through, Central Bank Discount Rate
Purpose: This study investigates the Philippine interest rate pass-through
over the December 2001 through January 2016 period. The empirical
findings suggest that the Philippine Central Bank has not been very
effective in formulating and implementing its countercyclical monetary
policy. Specifically, the empirical results reveal very low short-run and
long- run interest rate pass-through. The Bounds test results indicate no
long-term relationship between countercyclical monetary policy and market
rates. Notwithstanding the banking system’s remarkable performance in the
recent years, amid lingering uncertainties in global financial markets, the
Philippine Central Bank lacked the credibility in conducting its
countercyclical monetary policy. This empirical finding may not be
desirable but it forewarns the monetary policy makers of challenges in
formulating and implementing their monetary policy.
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