AN EARLY WARNING SYSTEM FOR INFLATION IN THE PHILIPPINES USING MARKOV-SWITCHING AND LOGISTIC REGRESSION MODELS

  • Christopher John F. CRUZ
  • Claire Dennis S. MAPA

Abstract

With the adoption of the Bangko Sentral ng Pilipinas (BSP) of the Inflation Targeting (IT) framework in
2002, average inflation went down in the past decade from historical average. However, the BSP’s inflation
targets were breached several times since 2002. Against this backdrop, this paper attempts to develop an early
warning system (EWS) model for predicting the occurrence of high inflation in the Philippines. Episodes of high
and low inflation were identified using Markov-switching models. Using the outcomes of the regime classification,
logistic regression models are then estimated with the objective of quantifying the possibility of the occurrence of
high inflation episodes. Empirical results show that the proposed EWS model has some potential as a
complementary tool in the BSP’s monetary policy formulation based on the in-sample and out-of sample
forecasting performance.
Published
2016-10-20
How to Cite
CRUZ, Christopher John F. ; MAPA, Claire Dennis S. . AN EARLY WARNING SYSTEM FOR INFLATION IN THE PHILIPPINES USING MARKOV-SWITCHING AND LOGISTIC REGRESSION MODELS. Theoretical and Practical Research in the Economic Fields, [S.l.], v. 4, n. 2, p. 137-152, oct. 2016. ISSN 2068-7710. Available at: <https://journals.aserspublishing.eu/tpref/article/view/283>. Date accessed: 23 jan. 2022.
Section
Theoretical and Practical Research in the Economic Fields