Determinants of Treasury Bill Rates in the Philippines

Roberto C,Valenzuela III,Maria Luisa G,Valera The International Academy of Global Business and T 2019 The International Academy of Global Business and T Vol.15 No.2

Purpose – A treasury bill (T-bill) is the safest money market instrument issued by the Philippine government and matures in a year or less than a year. This paper identified and analyzed the factors that affect the movement of the T-bill rate in the Philippines. Design/Methodology/Approach – An Ordinary Least Squares (OLS) technique was applied in this study using time-series data from 1971 to 2015. The process of forward splicing was used to complete the data of Consumer Price Index (CPI). Splicing is defined as the process of combining two or more index numbers of different bases into a continuous series of index numbers of a common base. There are two types of splicing: backward and forward splicing. In this study, only forward splicing was used because of missing data in recent years. To see if there was a structural break in the model caused by external shock (financial crisis), the model was tested for a structural stability test: specifically, the Chow Test. Findings - Based on the result, having low economic growth, low expected foreign returns, and high inflation would result in a high T-bill rate. Any major financial crisis can also influence the T-bill rate positively due to the influx of investors who would want to secure a safe investment. Furthermore, investors would be risk averse by investing in T-bills if the performance of the economy is sluggish and the expected foreign return is low. Thus, the T-bill rate serves as an investors’ guide on when they would take a riskier investment or a safer investment. Research Implications – Most studies related to this topic focused only on the use of real gross domestic product, real money supply, and expected foreign returns as factors affecting the Treasury Bill Rate. Adding two other variables in the model, inflation as well as financial crisis, and testing it for structural break, multicollinearity, and autocorrelation were the added value of this paper. Such tests are crucial for unbiased regression results that will affect the policy implications if not addressed properly.

Do International Remittances Contribute to the Food Security of Filipino Households?

Maria Luisa G,Valera 아시아무역학회 2020 Journal of Asia Trade and Business Vol.7 No.1

Purpose - Remittances are an essential source of funds for the economy especially to household recipients and serve as an additional source of income that helps them smoothen out their consumption, engage in entrepreneurial activities or as a form of investment. This paper examines if households’ current socio-economic factors as well as additional source of income such as remittances contribute to the probability of households being food insecure in the future. Design/Methodology/Approach - To determine if remittances could contribute to the likelihood that Filipino households would be food secure or not in the future, this study employs a two-stage Logit regression model using the Family Income and Expenditure Survey (FIES) 2012 dataset. The first stage used the probit model in estimating the remittance and the second stage used to estimate the household’s probability of facing food insecurity in the future. Findings - Results showed that households are more likely to face food security when income increases. Income is not only used for basic consumption by Filipino households but also to meet food security. Moreover, those households receiving remittances have lesser chances of being food insecure compared to non-remittance recipients. These, therefore, confirm the two assumptions that: (1) the higher the per capita income a household has, the lower the probability of being food insecure; and (2) households with access to remittances are less likely to be food insecure. As income rises due to remittances, the household’s likelihood of being food insecure diminishes. This means that remittance as a source of additional income is expected and treated as transitory and used for insurance purposes to safeguard the household from being food insecure. Research Implications - umerous studies have focused on examining how remittances are spent by the household recipients on food, education, health and durable assets. However, finding the link between remittances and food security of Filipino households is not being given much attention. When a larger portion of income is being spent on food and not devoted for saving or investment, it would contribute to potential food insecurity in the future. Households are considered highly vulnerable of facing food insecurity in the future if they have at least 70 percent food budget share on the total per capita expenditure. Understanding and assessing the determinants of the likelihood of being highly vulnerable to food insecurity is crucial at the household level to policy decisions both for the government and any research-led development projects.

Analyzing the Unemployment Hysteresis in the Philippines using the VAR Model

Maria Luisa G. Valera,Ashley Rose R. Dean 한국무역연구원 2021 The International Academy of Global Business and T Vol.17 No.1

Purpose – This paper examines the dynamic behavior of unemployment in the Philippines as well as the macroeconomic variables that are linked to it such as GDP, inflation, and interest rate. It also determines the impact of transitory shocks on unemployment via the hysteresis hypothesis. Design/Methodology/Approach – The Vector Autoregressive (VAR) model is the appropriate model to carry out the purpose of the study using data from the International Financial Statistics of the International Monetary Fund. The Dickey-Fuller Test is used to determine the stationarity of the time series data before proceeding to use the VAR model. Afterward, the Impulse Response Functions (IRF) are generated to analyze the short and long-run effects of each endogenous variable to unemployment followed by the Forecast Error Variance Decompositions (FEVD) that measures the contribution of each shock to a variation in one variable. Findings – Based on the preliminary results of the stationary test, a unit root exists suggesting that unemployment constitutes a non-linear behavior, meaning, hysteresis is present. Moreover, IRF showed that a one-time shock in unemployment has a positive change in its behavior. On the other hand, the one-time shocks of GDP growth, inflation, and interest rate generated a negative response. Unemployment was also found to have exhibited the lowest inertia or rate of adjustment in response to GDP growth among all the variables. This was supported by the FEVD result that the long-run behavior of unemployment is the most critical variable affected by its own lagged value or shock. Research Implications – The results of the study have important implications for labor market reforms since past studies in the Philippines concerning unemployment hysteresis are being studied negligently. Studies related to this paper deeply analyze the transitory shocks that induce permanent effects on Philippine unemployment which will greatly address the unemployment behavior and forecast more vividly.

Testing the Inflation Convergence among the Original ASEAN Members

Maria Luisa G. Valera a,Harold Glenn A. Valera 한국무역연구원 2014 The International Academy of Global Business and T Vol.10 No.2

This paper examines the inflation linkages in the original ASEAN member countries (ASEAN-5) using time-varying parameters, common trends and tests for weak exogeneity from January 1990 to June 2012. The results using the full sample period indicate no evidence of Singaporean leadership despite increased financial and goods market integration among the ASEAN-5 in recent years. The results reveal evidence of partial convergence in the sub-period when inflation rates are generally stable. The study has two implications. First, the results appear to be consistent with the other studies that despite the obvious financial and goods market integration, ASEAN-5 are not ready to adopt the single currency because they are prioritizing the stability of their domestic currency, as well as, setting inflation targeting to avoid fluctuating price level. These countries also fear losing the monetary flexibility that is associated with the issue of political sovereignty. Second, the costs of monetary integration within its members are high, resulting in the reluctance of economic leaders to have a common institution handling and controlling Asia.

The Effect of Remittances on Consumption and Investment in the Philippines

Cyara Ysabel M. Perez,Maria Luisa G. Valera 아시아무역학회 2020 Journal of Asia Trade and Business Vol.7 No.2

Purpose – Remittances have long been contributing to the Gross Domestic Product (GDP) of most countries, especially, the Philippines. Numerous studies examined the channeling of remittances on consumption and investment but to which impact is bigger is still an ongoing debate. This paper aimed to identify which channel the Philippines uses its international remittances. Is it for consumption or investment? Design/Methodology/Approach – This study employed vector auto regression in generating the dynamic effects of each variable involved and forecasting its respective behavior using data extracted from the Philippine Statistics Authority (PSA) and Bangko Sentral ng Pilipinas (BSP) from 1998 to 2018. Apart from the regression stage, Impluse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) were utilized for better interpretation of the respective variables’ relevance and forecasts. Findings – By extracting the impulse response function through the vector auto regression analysis, Philippine international remittances were found to be positively spent on the consumption channel. However, based on the result of the forecast-error variance decomposition, it suggests that remittances are more relevant on the investment channel, especially, for future periods. Research Implications – Despite the increase in aggregate investment of the Philippines, international remittances have not been spent productively in the investment channel and have been largely spent on consumption. The result also displays that remittances were forecasted to have great potential in investment growth, especially, for future periods. In this regard, the country should further enrich the financial environment either in financial institutions or financial markets to motivate remittance-recipient families to use some of their remittances for investment purposes and not only for consumption.