Philippine Institute for Development Studies
Macroeconomic Impact of a Tariff Reduction: A Three-Gap Analysis With Model Simulations Josef T. Yap DISCUSSION PAPER SERIES NO. 97-03
The PIDS Discussion Paper Series constitutes studies that are preliminary and subject to further revisions. They are being circulated in a limited number of copies only for purposes of soliciting comments and suggestions for further refinements. The studies under the Series are unedited and unreviewed. The views and opinions expressed are those of the author(s) and do not necessarily reflect those of the Institute. Not for quotation without permission from the author(s) and the Institute.
February 1997 For comments, suggestions or further inquiries please contact: The Research Information Staff, Philippine Institute for Development Studies 3rd Floor, NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, Makati City, Philippines Tel Nos: 8924059 and 8935705; Fax No: 8939589; E-mail: publications@pidsnet.pids.gov.ph Or visit our website at http://www.pids.gov.ph
MACROECONOMIC A
IMPACT
THREE-GAP
OF
ANALYSIS
inexorably
development
linked
Washington
This
MODEL
SIMULATIONS
Yap _
markets
and
(Krugman,
percent level by the commitment to AFTA during
the
arguments
confined being
in the
the of
adjustments. involved in
(1990)
the
elaborate
2004. also
APEC for
to
decade world's
a sense
of
formality
treatment
is
provided
by
economic
development
this
policy
tariffs
to
thrust a
is
uniform
is contained Manila Action
trade with
there to
have
been
efficiency has
been
in
5 our Plan
effects
comprehensive
of
consolidate
framework
Philippine by
case Taylor
as
these
tariff
key
issues
the
its effect situate our
formalized
by
Lim
(1994).
foreign exGhange the macroeconomic
largely
considerations no
liberalization revolves around Thus it would be useful to
the
the facto
meeting.
far
three-gap
as de
is grounded policy--free
of
macroeconomic
to
been
agencies, economic
to
slash
has
known
the
This timetable in the recent
attempts
of trade balances.
constraint, will determine
key
sphere So
applied
a savings constraint
given
liberalizing
potential
the
after
evidence
leaders
This paper debate.
within and
year and
past
multilateral virtue in
government
focus.
the
The impact macroeconomic
analysis
was
the
microeconomic
primary
discussion
which
clearest
the
the
popularly
coined
money--is The
of
in
framework
term
think tanks and that Victorian
1995).
The
the a
sound
intention
presented
policy
framework,
Washington based on the belief
the
to
consensus,
capital.
in
T.
REDUCTION:
Introduction
Philippine
on
TARIFF
WITH
Josef
1.0
A
by
(1990). The
Bacha A
interplay
constraint effects of
more of
and fiscal a reduction
tariffs.
In following
the
next
closely
discuss the in Section
section the
we
develop
methodology
potential macroeconomic 3. In Section 4 we
the of
model
Bacha.
effects of then attempt
of Using
the
three
the
model
gaps we
a tariff reduction to quantify these
iResearch!Feilow, :PIDS. The author wouldilike ÂŁo:acknowledge the _xcell_nt researc_ assistance of Yvainne Y_ Yacat. !The usual_disc!aimerlap_lies-
effects
using
Mc)del.
Section
2.0
The
a smaller 5
Three
Bacha's
model, The
for
balance
and
the
SavinQs
of
(private
plus
the
equality
- X
Replacing
= F (2)
Macroeconometric
the
the to
of
one-period
inequality
constraints.
between the
flow the
income
government
supply
consumption constrained
and budget
and
the
incorporation
flow
of
the
analysis.
national
+
(M
accounting
and
absorption,
we
can
which
formation,
and
of
write:
Y
is
consumption, X
is
M
exports
payments,
domestic is
of
the
output
imports
goods
excess
i.e., the services
of
goods
C and
non-factor
imports
difference to abroad,
over between J:
(2) (i),
is
at
its
(3) potential
is given exogenously, equation level _of investment--written
2The derivation pp._ 280'2286.i
(GDP),
of
and
_ J
income
the
(i)
government)
and
shows
- X)
capital
balance
identity
I-- (Y- c) + (F- J). When
investment
fix-price
identity,
rise
into
a
balance
between
give
in and
the
exports is equal to foreign transfers, net capital inflows, F, and net factor M
Annual
maximization
rate),
payments
gaps
services,
the
of
income
- C)
fixed
From
growth
equality
basic
I is
non-factor services.
in
are
These
between (Y
PIDS
Gap
the
I =
the
paper.
exercise
a number
macroeconomic
equality
where
an
output
money.
From
is
to
the
of
2.1
the
constraints
constraint, various
is
the
subject
absorption,
of
Gaps 2
equality
demand
concludes
model
(as a proxy
version
level,
Y',
(3) yields as IS--and,
of the three_ saps_ is iargely lifted .... .
fr0_
and
private
the savings hence, the
Bacha
(1990),
3 savings-constrained potential assumed to be constant.
The
savings
IS
The
=
(Y" - C)
sources
foreign
of
is
+
=
then we to use
potential
main
If
(Y" - C
rate
control
of
policy
of
making
capital variable The
right
hand
IS
= Sp* +
(T
where budget
2.2
Foreign
To Assume
the
imports
goods
exports,
E,
E
= X
let
the
"internal
written
savings"
- G)
workers
J
in
the
of
+
(F
are
policy can
the
- J,
•Replacing
to
same a
as
the the the with
decision
makers. further
be
decomposed
- J)
as:
(6)
savings account.
and
(T
- G)
is
the
primary
cL_R
foreign
exchange be
constraint,
divided
Mk,
difference
and
into other
between
two
we types:
imports, exports
start
(2).
complementary
Mo. and
from Define
other
net
imports: (7)
given
0. % m .< 1
under
are
by:
M k = m.I, where
are
exogenous
country, F
not
- Mo
M k be
and
chooses is that
which are
variations transfers,
(4)
private current
can
short-run
developing of
Bacha this
remittances,
the
foreign
side
are
as
and foreign savings. one basic reason. And
control
imports,
as
are is
These
exchange
derive that
capital
in
of
Sp" is potential surplus in the
4
and
Thus, the
ICORs
(5)
savings (5) for
process
beyond
if
(4)
government.
inflows.
output,
+ F
changes
the
of
as
investment
variations
source
written
equation
- J)
have national (4) and not
interest
thus
rate
(F - J)
transfers.
IS
and
gap
growth
(8) is (7)
the and
import (8)
content into
_
(2)
of ana
investment resnurrÂąing
_ â&#x20AC;˘terms,
one
4 gets I =
(l/m)[E
Introducing
+
the
IE--is IE
the
m
Chenery
on is
ii
of
exist the
by
a
slack
In
'variable
_government .assumed to
is be
(I0)
transfers
immediately
have
a bigger
constrained
yields impact
economies
is
investment
in
the
dependence
such
a way
on
than
on
of
that
as
private a maximum
(II)
the
idea
central
that
late-comer
for
government
role
basic industries, which sets investment to occur. If we
development
is
investment, an upper let
in
limit
for
(12) (12)
+
and
(II)
(T
- G)
makes for
the for
particular then
+
(F
bonds
domestic this
it
into
critical
government
alternative
deficits.
exports,
demand the is written
Ig
then
a market only
net
> 0.
(Sp - Ip)
Bacha
(6) with
constraint
expresses
and substitute we obtain
Is =
of
foreign
this
infrastructure and profitable private
Ip +
of
(i0)
foreign-exchange ones.
government
characterized
I =
level
gap
Ip = k-Is, k
Equation
the
(F - J)].
that
of
basis
investment its value
that
value, E*, given by world level of investment--which
a comparison
result
FisQal
The
+
< i,
the growth rate savings-constrained
2.3
assumption
by:
(l/m)[E"
Since
(9)
a critical constrained
given =
J)] .
critical
E, cannot surpass foreign exchange as
(F-
_ is.
means only'
(3)
and
decompose
total
J) .
(13)
assumption which
that
leaves
financing that through
able to capture this excess a _fhnctiOn of two variables:
savings
of if
there
money
does
not
expansion
as
government
private seignorage
sav_ngs., Jthe rate
budget
savings that
is
a
the
seignorage:is" of: inflati6n,
-
p
and
the
propensity
Sp -
Ip = dH/P
-where
dH
price
is
the
=
hoard,
f(p,
h.
We
have:
(14)
in
nominal
money
holdings
and
P
is
the
level. (14)
replacing (ii) investment--written IT
=
foreign
3.0
as
Policy
(6),
are
goods share versa.
is
is
the in
both
the
the
than
The on m
capital
+
past
from k)
of
result
+
in
(12)
and
constrained
fiscal
also
level
(F - J)]
represent
1 (F
of
- J)
of
(15)
the
savings
constraint
goods
and
constraint,
respectively.
of
years .25.
IT
m
ranged
Hence
steeper
we than
where
than
positions
binding while for va!ues_less than iis binding. _heifor_eign exchange ;:_J)'
It
I/m
have
steeper
IE
and
are
them
while
i/(i
the government + k) and vice-
the
to
.45
set
i/m
capital
while to
states
1/(l
be
that
less this
developing economy k) corresponds to a is
both
Our
of the
that
than < (I
Bacha
Brazil.
graph
if
safely
oriented > (i +
(F - J)',
and
we
Thus
0.3
industrialization
the. relative
greater
IE
investment
from IE.
clear
IT
of
can
issues
and
of
content
advanced, such as this characterization.
:(F -i J) <(F
is IT
of investment is greater (m > i/[i + k]) then 1/m
country
shows
It thus
investment.
to a small private the case where i/m
- J)
policy
positions
import
share
specific space.
one
relative and k.
.2 to
developing
Figure
(F than
five
making
and relatively consistent with
values
(15) and
I and
condition applies like Taiwan while large
- G)
analysis
government
the
ranged (i
(T
and
greater
import content of investment
Over + k)
the
Analysis
slopes than IS. determined based
m
+
constraint
constraints
+ k)
and
(12) the fiscally IT--is given by
(i0)
facilitate
(i + k)
(13)
(i + k) [f(p,h)
exchange
To
in
in
Equations
J)"<
thus
h)
variation
Replacing
the
to
IS,
IE
savings
state-led
results
are
and
IT.
For
constraint
is
(F - J_) ", .the fiscal constraint constraint, is binding for_, (F i-
is' Clear
that
:the
effects
bf
a
tariff
!
6
reduction
would
What First,
is
we
.primary tariffs
depend
the
have
volume
of
will
latter is considered This shifts both IS in
I for
Meanwhile, in
m
in
in a which value down
the
case
of
of
E[ also
to
unlikely and and IT downward
reduction the
- G) 2 and
of
I.
The
binding
an
T.
to
increase
in
a tariff restrictive
and are:
consequently
an
The
increase
This
to IE' values
that more
the
the
reduction
the
increase
mobilization
investment. the
Most BSP
speculative 2.
foreign
results
for (F - J) of (F - J). M o and
IE
investment
is in is At
on
the in
> 0 The
settles
an the.
This The a fiscal
empirical
on
to
is
a
growth
the
is
result
is
strain
on
policies domestic
of
public
exchange
prevent
under
high
savings constra_int_is birding ; Philippines _at , pres,ent. _| . .
rate
debilitating
when
from
the
comparative but
and
economy
relative in of
the
is
slopes
investment
foreign
because
constraint the
the
fall
constraint
levels and
smallest
follows
exchange
larger
relatively
This put
efficiency
pressure
the an
constraint
will
the
question,
foreign
likely
GDP
Thus the focus of away from increasing
will
investment
under
lower
makes to
peso.
constraints. is
a
tariffs.
imports
decisively
constraint.
economy
constraint
there
reduction leading
exchange
in
in
enhancing
move
decline
various
movement
likely
attacks The
the
and
must
a savings
3.
of
should decline. 3) leading to a
constraint.
is
where
after
since
savings
when
the
T. Lower increased
level
lead
to
existing foreign exchange resources. should shift towards the trade sector
the
in
- J).
should
exchange
investment results
range
widens
intuitive
of
(F
due
result then constraints
unambiguous fall in rate. Other notable
under
tariffs?
IE".
The key macroeconomic
and
in
surplus
hence (T (Figures
of IE (Figure 4) I for all relevant
declines
the
the
tariffs
foreign
- J).
reduction of
maintain
values
in
a
(F
the level of taxes revenues unless the to
relevant
of
of
reaction
particularly lower tax
rotation fall in
value
impact the
compensate
all
a
clockwise causes a
initial
determine
(T - G) lead to
imports
decrease
the
macroeconomic to
account should
on
exchange the
double
reduction
in
latter. _.of
t!his _eems
foreign to
be
transfers, the
caseifor
_the the
_7
What investment?
The tariff
are
the
most
possible
obvious
revenue.
Even
if
revenue, of
in
the
when
level
of
the
savings is
The
to
be
the
to
no
Again
required
constraint
the in
for be
the
based and
the (F
there
J)
of
foreign
transfers,
portfolio investment, because of its direct investment should be encouraged. low
uniform
in
tariff
more
The
will
foreign
case.
If
consideration
of
Jong
1994
and
Vos,
of
of
the
Another the ICOR.
efficiency Thus, the
of
foreign
foreign for
the
direct
macroeconomic
of
If
the than
choice
of
that
the
ievels push
tariff
the of
of
rather
businessmen,
fiscal
is
quite
economy
percent
ICOR
is
foreign towards
climate
investment as
then
is some
the
become
the
thus
critical
most
studies
widening
of the three-gap in tariffs is and
this
important
show
trade
(see
and
It may be offset the
model aimed
assumption
a constant
the
De
fiscal
that the positive
ICOR
is the constancy at enhancing the
may
be
may
unrealistic.
fall
following
liberalization.
value of ICOR depends more the level itself, then the
five
the inflow costs and
reductionl
remaining
trade
(say _below for
the
Instead the move
business
stability
a survey)
key assumption The reduction
instead program
largest
investment.
deficits should be a great cause of concern. deterioration in macroeconomic imbalances will signals
slopes
however,
volatility. Hopefully
improve
direct
determinants
this
an
binding.
composition
attracting
is
is
when
tax
tariff
relative -
smallest
of
of
in
if
in
loss
area
loss
on
in
Comprehensive
important. Less emphasis should be placed on increasing of OCW remittances because of its attendant social
a
fall
the
the
maintained
increase
is binding
for
of
especially
can
the
compensate
compensation
investment the
counteract
importance
government
transfers.
constraints,
constraint
the
is
foreign
would
increases
of
there
the
increase
remedy
This
Tax Reform Package administration.
policies
given
the
invariant 15 _percent)
!th@ ilimit, and
opt
on the uniformity government must
revenue
implications.
within
a
and
it_that
for.a i higher
of tariff rethink its
specified case 14vel
It
range the of
of
be
tariff
_overnment
:uniform
may
can
tariffs.
_
4.0
Model
Simulations
A smaller The
macroeconometric
objective
of
the
precise
macroeconomic
whether
the
after
a change
The a
in
standard
of
the
supply
and
government
mainly
through was
main the
model
due to imports
improvised
interest
merchandise trade taxes,
The
tariff
from
estimated
to
to
created
by
favor
t to
of
decline The
affects Pm
the
was
(se_
influences
a
may
graph
be
leads
to of
at
of
both
6
price of
use
data
is
from
rate,
money feed
variable
on
into
tariffs Hence
for an
taxes
and
trade
t was generated using equal to the aggregate Pm
and
imports
of
using
available
historical
shown
Figure
is
there is in 1975
of
the
certain on
rate
t appears
the
It
t
the
price
HCV
towards
in index
three by
appendix). level
and
_The aggregate tariff :_ is equlvalent macroeconometric model. :
in a
goods
for
of
With
equations The the
to
we
in
the
of the
the cost
aggregate rate
in the
valuing
scrapping
system,
5 percent
adding
The
our
arbitrariness
the
value
data
5.
distinct decline One reason for
system
degree
imports.
transaction
a uniform
wholesale
equation
a
taxes
intermediate
variable the
prices
calculated A
value
trade
variables
tariff
data
tariff to be
import
the
in
annual two
a
using
erratic
which
impact
the
Appendix.
of time series for macroeconomic scale.
although its value
computing
the
(16)
1995.
movement
satisfied
on
exchange
latter
introduce
behavior of t is erratic its value in 1995 from
imports
the
but
and
the
using
are The
center
in
the
tariffs are
deficit
paper.
determine
in
= t.Pm-M
variable
1975
These
presented
imports. An aggregate TT, which are assumed
TT
to
investment
are
the unavailability measured on a
tariff rate t multiplied in real terms, M: 3
not
this
rate.
difficult
was
in
variables
for
reduction
government
spending.
variable
is
the
the
model
policy
rather
estimated
structure. on
demand-driven The
of
a decline
tariff
tariffs
1967-1994.
the model commodity
for
was
exercises
effects
the
in
details
It
simulation
conditions
of a reduction balance.
model
of
to the va_iabie
in of
can
HCV
assume
year
2004.
model. of
It
imports,
tariff inflation.
TARF in the :
thus _
By
9
affecting
the
import
cost
demand
of
and
imports
the
it
trade
also
deficit
impacts
on
the
(equations
4
and
level 5
of
of
the
deficit is used
in in
appendix). -. the
Equation 16 shows macroeconometric
determining 26
of
total
the
how t will affect model since the
tax
revenue
appendix).
A
effects on TT, upward the fall in t itself.
In I0
the
percent
2004. t is
and
allowed
The reduction (Figure
to
6)
the
It
the
could
Concluding
of
widens
imports and as
8).
discussed
be
argued is
tariff
(In
the
For
the
IE
period
1996-
"shock"
run,
in
2004.
6 to 8. A for imports
constraint. 7)
to
between
5 percent
(Figure
does not a result the
that
Section
the
putting
As
a
pressure
compensate the fiscal
actual
not consistent model. The the on
3 become
three-gap with latter,
for the balance
simulations
the
that the satisfied
relevant.
framework
is
a
one-
the dynamic structure however, is a series
simulation a consistent
results basis
show that following
of of the the
level.
considerations
could
empirical analysis in the full version
by adding the production of the macroeconometric
the
effects
miCroeconomic
be adjusted.
due
maintained
toward
the
opposing
downward
for
and
Remarks
Efficiency
coefficients
to
is reduced.) This implies IT and IS constraints is in
one-period adjustments and fiscal balance deteriorates
5.0
percent rate
and
be
solution.
movements
deficit
(Figure
period model and the macroeconometric
the
13.5
M
lead
20
rate.
issues
in
t to
of
in the volume of the tariff level
fall
assume
a uniform
the
trade
deteriorates
all
thus
in
we
surplus in the primary account condition for more restrictive and
will
(equations
for key variables are shown in Figures tariff level leads to greater demand
the
rise in
t
increase
baseline
at
government
in
an
value the
justifying
exchange
The reduction also
1995
decline
results in the
consequence, on
its
to
process
This. represents
the
decline
due
simulation
of
the government variable TT
of, ,ke_ . â&#x20AC;˘ _ This'
is
iof a
variables equivalent
reduction
be
incorporated sector model.
.in
(presumablyi : _tb modifyinq
the
the
which is present To account for tariff,
_the -price the
in
level
indices) "
ICOR.
the '
_ust 1
The: ideqree
0
of
adjustment,
of
however,
requires
further
research
beyond
the
scope
thisstudy.
The -influx
BOP
of
foreign
revenue. estimated stability with the then
sector
also
capital
An
equation
which
would
be
could
greater foreign
open
returns familiar
Even
without
more
arise
increase
government
must
make
revenue
the
exchange
the
fall
by
the
policy
tariff
a more coherent investment.
to
level.
results,
increase
the the
profit
greater
other
areas.
government of
the
reduction
in
Second,
important
level
of
important First
the
of
flow
several
for
in
be
effects
discussion.
Finally,
to
the
a
extremely
tariff
should
potential
induce
effort
become
in
an
macroeconomic
offset
compensate
tax
will
program
and
previous
attempt
increasing
rate
in
an
fall
that
(that would vary trade-off. It can
in
will
empirical
the
the
representing
regime
precise from
shown
investment
to investment risk-return
the
trade
was
for
direct
macroeconomic instability direct investment.
implications
it
compensate
variables
whether
more
since
foreign
include
determined the
important
for
and the potential tariff level), the
following
tariff
is
following must
develop
foreign
direct
References
Bacha,
E.
L.
(1990)
"A
Three-Gap
and the GDP Growth Rate in Development Economics 32.
De
Jong_ to
N.
and
ISS
Working 57. P.
(1995)
J.
74
Y.
The
(1990)
Case
Economics
Taylor, 45.
L.
of and
(1994)
and
of
Tulips
Empirical
Survey
Money,
Institute
"Dutch
(4),
on
A
of
Finance Social
and
Foreign
Countries,"
"Theoretical
Series
Hague:
of
Developing
Investment:
Paper
The
Affairs,
(1994)
Foreign
No. Krugman,
Lim,
R. Vos
Direct
Model
the and
Transfers Journal
of
Approaches Literature," Development
Studies.
Emerging
Markets,"Foreign
July/August. "An
the
Application Philippines,"
Business
h"Gap
of
XXVII
Models,"
Bacha's
The
Three-Gap
Philippine
No.l
(June)
Journal
of
Model:
Review
.
Development
Economics
of
11
IT , IE ..,..'
jl I
I
.........
/ ......... .............. _
j/j.'"
...... I$
jfJ" ..J
//
ii
...7"
IT - fiscal constraint IE - foreign exchange constraint IS - savings constraint
(F-J)" (F-J)'
(F-J)
Figure 1 DIAGRAM OF THREE-GAP MODEL
12
I IS ///IS'
I"
/
....-/;y
i/
ii/I/ /
t
(F-J)'
(F-J)
Figure 2 EFFECT OF A REDUCTION IN if-G) ON I UNDER A SAVINGS CONSTRAINT
13
I
IT
IT' I
I I •
I"
i ......
III
/,
!_ i i
i
/
.........................
/
/
,,,
',/
//
,j: 1-............................
(F-J)'
(F-J)
Figure 3 EFFECT OF A REDUCTION IN (T-G) ON I UNDER A FISCAL CONSTRAINT
14
I
IE / I
J
/
/i
/ IE' IE" II, ''
,,',
-t.......!,-,, ./.,',-1 I/,'," f
i--,,
J ....
(F-J)'
(F-J)
Figure 4 EFFECT OF TARIFF REDUCTION ON I UNDER A FOREIGN EXCHANGE CONSTRAINT
-_
Figure
5.
(1975
BEHAVIOR
to
1995)
o_' Au_REGATE
30
TARIFF
VARIABLE
I
.............
I • 25
p-
[.•
Base
j I 4_- Shock
\ \
\ •._ ,:-20 _
15 __
\
i
10
I 1975
l
_ 1977
l
L ___ 1979
I 1981
J.... 1983
_.......
1 _ __L 1985
I 1987
_±__
I 1989
i
I 1991
I
I 1993
1
I
I
1995
Year
u1,
Figure
6.
SIMULATION
RESULTS (1997
750
650
. ._
to
FOR
MERCHANDISE
IMPORTS
2004)
.........
i
600
550 L
500 450
Shock I _. "" Base
_
I
i
_ 400 "
--
f _ 1997
' 1998
I 1999
I
1
2000
2001 Year
_ 2002
I 2003
, 2004
Figure -_80
7.
SIMULATIONcI99_RESULTSto 2004) FOR
TRADE
DEFICIT
......................................... i
-200 ._ -220
j
•
l
_i_
i
Base Shock
_ -26o_ -280
[
-3oo_ -320
-_ I
I
1997
1998
I 1999
L
I
2000
2001
Year
I 2002
J
I
I
2003
2004
.i
I
Figure
8 _ SIMUT_ATI6N-(1997RESULTSto 2oo4> FOR
FISCAL
BALANCE
I
50
0 /
'_
-100
-,.4
- 150
e
l.ii -200
--
-250
__1 1997
Base
4> Shock
' 1998
i 1999
i 2000
I 2001
I 2002
i 2003
I 2004
CO
A_PREDT_"
The - shown larger
in
estimated Table model;
equations Yap et al
a rather
using
weak
alternative not
unit
could
Meanwhile, In
to
used
not the
be
are
the
percentage
important
observation better
for
is
the
error
that smaller
(1993)
residuals
Those those
or
checked
statistic. of
the
where
null
for
This
observations
equations
the the
Constantino,
were
number
where
are
is but
the
hypothesis
ADF of
a
rejected.
variables
the
Yap
small
model
closely those of discussion of
Dickey-Fuller the
goodness-of-fit
general,
follow detailed
the
available.
reported
macroeconometric
and
and
Augmented
ADF
behavioral equations are valid fit show that the model tracks absolute
the
Reyes
considering
is
is
root
was the
test
statistic
A.3.
refer
estimation
stationarity
for
A.I. The specifications hence, for a more
once could (1990). 4
OLS
no
equations
and like
the
measures
presented
in
indicate
the
key
regressions the variables
while the statistics rather well. The
of mean
the
RMSPEs
GDP,
CP
are and
when
4Reyes, C. M. and J. T/ Yap (1993), _acroecon0metric Model" Manuscript.
compared
that
Table
statistics
statistics-of-fit
model
are
below
five
prices. are with
"Re-estimation
percent One
only the
for
notable
marginally
larger
model.
of the PIDS
Constantino, W. M., J. T. Yap', R. Q. ButÂąong and A. _. dela Paz _(1990 _An Annual Macroeconomet_ic M_del for the Philippines;" in ASF_N Link - An _conometric study e_ited;by Y. Nakamura and J. _. Yap. Singapore: _ongmaD, 1990. ;_
Table LIST (Figures
I.
Private CP
in
OF
=
BEHAVIORAL
parentheses
Consumntion -109721.40
A.I EQUATIONS
are
relevant
Expenditures +
(7.79)
0.099
*
(GNP
* POP
+ 1.033"
(MS
(7.08)
R2
=
DH
=
F-stat
2.
/
i00))
+0.351 * LAG1( (3.84) ADF
-0.27941
5%
6179.85
YEAR:
Investment IDER
=
_n
Durable
9836.66
+ LAG1(
CP
Test
DH
=
F-stat
3.
=
CONSPR
(2
*
*
(5.33)
*(TBILL
-3.09
value:
- 610.17
-2.997 - 1994
INFL
-
(3 .12)
- INFL)
+ 0.21
*
(CONSPR
+
(2.81) + 0.338 * LAGI(IDER) (2.14)
ADF
2.16
5%
81.55
YEAR:
Test
Stat:
critical
-5.55
value:
-3.02 1970
Construction = 6754.92
+
(I. 97_) i60.35
/
1968
0.944
Private
))
Stat:
critical
* MGDS
(CGOVN/(PCGOV/100)))
=
MS
/ i00))
)
(2.84)
R2
(CPI
E_ipment
+ 0.148
(2.85)
635.62
/
(7.43)
0.9989 =
- TOTTAX
(3.90)
+ 5488.22
(CPI
T-statistics)
*(TBILL
(0._695)I
0.126 _
*
(GDP
- LAG1(
GDP
(2.69)
- INFL)
-. 3'08.23
*_ INFL
(I_._26_) '
)
- 1994
21 +
0.258
*
(CGOVN/(PCGOV/100))
+
0.717
(1.85)
R2
=
0.933
ADF
DH
=
-1.53
5%
67.81
YEAR:
F-stat
4.
=
Merchandise MGDS
* LAGI(CONSPR
)
(3.96)
Test
Stat:
critical
-4.28
value
-3.01 1970
- 1994
Imports
= 105232.50
- 76109.96
(2.47) 0.476
*
*(PMGDS
/ PGNP)
(i
+ TARF)
(3 .03) (GDP
- LAG1(
GDP
))
+ 8.27
(4.25) 0.932
*
*
(NFA/PGNP)
+
(1.36)
* LAG1(
MGDS
)
(1.93) R2
=
0.98
ADF
DH
=
0.1772
5%
243.60
YEAR:
F-stat
5.
=
Import MSV
of =
Test
Stat:
critical
-3.55
value:
1975
+ 0.024
(0.84)
* MGDS
+
0.820
(2.53)
* LAG1(
=
0.91
F-stat:
127.22
DH
=
0.18
YEAR:
1968
6.
Lou
Wholesale = 2.56
+ 0.406
(1.74) 0.253
P_ic_
*log (1.38)
+ 01.33996:9"
MSV
(0.09)
R2
LWPI
- 1994
Service_
1172.21
of
-3.02
- 1994
Index * LOG(PMGDS
*
(i + TARF))
+
(2.13) (-TL/GNP)
LAG1(
- 4.03
LWPI
*(K46/LAGI(K46 (2.71)
01)
)
i i(2,23)
: R_ -DH
=
0.992
F-s_at:
=
2.45
YEAR:
i 584.7! 19i75
-
1994
)
+
22
7.
Tm_licit PGNP
Price =
1.49
Index + 0.114
(1.37)
8.
+
0.614
Pro._uct
* LAG1(
PGNP
0. 997
F-stat
DH
=
2.27
YEAR:
Consumer
Price
:
4003 1968
- 1994
Index
= 0.950
+
0.085
* WPI
+
0.737
* LAG1(
(4.29)
CPI
=
0.995
F-stat:
2773.25
DH
=
2.37
YEAR:
1968
T_plicit
Price -0.296
+
(0.23)
Index
for
Go_rnmeDt
0.061
* WPI
+
(3.68)
0.917
- 1994
Consumption * LAG1(
PCG
=
0.998
F-stat:
4861.84
DH
=
0.52
YEAR:
1968
PCGOV
Price =
1.16
T_dex
for
+ 0.163
(0.83)
)
(16.30)
R2
Implicit
Government
* WPI
+
(7.37
0.446
- 1994
Construction * LAG1(
PCGOV
=
0.995
F-stat:
2S49.99
DH
=
1.94
YEAR:
1968
PMGDS
=
Price 0.643 (0.74),
R2
=
DW
=
_ 0.998 _ 1.92
)
(5.24)
R2
implicit
)
(8.59)
R2
=
)
(7.69)
=
PCG
ii.
* WPI
N_tional
(6.03)
(0.74)
i0.
Gross
R2
CPI
9.
for
Index
for
+ 104.32
MeIchandise
* PMDOL
- 1994
Imports
* ER
(99.81) F-stat:'
9961.31
YEAR:
1970
- i_94
23
12.
Direct
Ta_
DTAX
=
-2922.81
+ 0.051
(1.55) LAG1(
DTAX
* GNP
*
(PGNP
/
I00)
+ 0.560
(3.78) ) +
*
(3.76
21246.96
* DUM94
(5.11)
13.
R2
=
0. 996
F-stat
DH
=
0.14
YEAR:
Total
1514.
995
1975
- 1994
Taxes
TOTTAX
=
2850.57
+
0.856
(2.33)
14.
:
* TAXREV
+
(10.26)
=
0. 998
F-stat
DH
=
1.64
YEAR:
Interest
TBILL
=
-0.278
Rate + 0.311
(0.095) TOTTAX)
/
7.80 * (1.25) +
on
(TL
0.322353
91-Day
* INFL
*
:
4995.
Treasury +
065
1975
59.16
(6.18) (GNP
* LAG2(TOTTAX)
(1.89)
R2
Average
0.213
- 1994
Bills *
(CGN
+ CGOVN
-
(2.24)
(PGNP
/
/ LAGI(TL)
i00))
- I)
-
+ 0.442051 (3.63)
* LAG1(
TBILL
* TIME
(3.65) R2
=
DH
=
F-stat
15.
0.80 =
Test
1.095
5%
19.76
YEAR:
Capital KCAR
ADF
Stat:
critical
-3.43
value: 1971
-3.004 - 1994
.C.onsum_Dtion Allowance =
-13357.42 _(3.q3)
0.754_
+
0.038 (4.79)
* LAG1:( _KCAR
_-(8.82) I,
* GDP
+
'.
)_ - 1280_.95
0.013 ;
* LAG1( (2.10)
* TrME
' (_.76/_
K46 i
) +
24
R2
=
0.992
ADF
DH
=
1.80
5%
858.35
YEAR:
F-stat
16.
=
Mer_.handise
+
291.57
(2.54)
*
(ER
+
0,096
=
F-stat
=
/ LAG1(
* GNPJAP
- 1994
ER
)
- i)
* 100
+
+
0.652
* DUM80
* LAGI(XGDS
)
(4,97)
+ 0.218032*(GDP
(4.03)
DH
-2.99 1968
(1,76)
+ 31236,75
=
-2,47
value:
(2.42)
* MGDS
(2.40)
R2
Stat:
Export_
XGDS=.-15839.05
0.151
Test
critical
- LAG1(
GDP
))
(2.12)
0.976
ADF
Test
-2.25
5%
175.91
YEAR:
Stat:
critical
value:
-3,43 -2.99 1968
- 1994
5
LIST
17.
GDP
=CP
+
(CGN
/(
(PCGOV/100)
OF
PCG
IDENTITIES
/
+ XGDS
I00))
+ XSV
+ +
IDER
IINV
+
CONSPR
+ BREEDR
+
CGOVN
- MGDS
/
- MSV
+ STATD
18.
GNP
= GDP
19.
DEFNEW
=
+ NFIA
CGN
20.
TRADET
21.
TRADENEW
22.
INFL
23.
KGR
= K46
24.
K46
= LAG1( + I INV
25.
WPI
=
26.
TAXREV
=
+ CGOVN
= TARF
* MGDS
= XGDS (CPI
- TOTTAX *
/
100)
) -
*
I00
- MGDS
/ LAG1(
/ LAG1(
CPI
K46
K46 ) + + BREEDR
+ TRADET
i)
) - 1
(CGOVN / KCAR
EXP(LWPI) = DTAX
(PMGDS
(PCGOV
/ i00))
+ CONSPR
+ IDER
•
Table List
of
,.-
Variable
A.2
Endogenous
, ,
Variables
,,....
Name
Variable
u,
,,,J,
CP
Personal
IDER
Investment Million P)
u.
Consumption
,,.....
CONSPR
Description
--
in
(Real;
Durable
Equipment
.,
Private
(Real;
(Real;
Million
,
MGDS
P) .,
Merchandise l
P)
,
Construction
,..,
Million
Imports
(Real;
Million
P)
.....
MSV LWPI .,.
,m
Import
of
log
Wholesale
of
_
PGNP
(Real; Price
Million
Index
P)
(1978=100)
,.,
Implicit Product
CPI
Services
Price Index (1985=100)
for
Gross
National
Consumer
Price
Index
(1985=100)
Implicit
Price
Index
for
Covernment
for
Government
for
Merchandise
u
PCG
Consumption
(1985=100)
.L-
PCGOV
Implicit
Price
Index
Construction PMGDS
Implicit
(1985=100)
Price
Imports
Index
(1985=100)
DTAX
Direct
TOTTAX
Total
TBILL
Average Bills
Interest
Capital Million
Consumption P)
J,.
Tax
(Million
Taxes
P)
(Million
P)
Rate
on
91-Day
Treasury
,.,
KCAR
Allowance
(Real;
J .....
XGDS
Merchandise
GDP
Gross
Domestic
Product
(Real;
Million
P)
GNP
Gross
National
Product
(Real;
Million
P)
DEFNEW
Fiscal
TRADET
:
,
I
• RADENEW_INFL.
• -.- _
" -_
Taxes
Exports
Deficit on _
(Million
international .... _
i
i
,TradelDeficit Inflation
(Real;
Rate
Million
P)
P) Trade
(Million.
_
(Re_l;_ based'
_
Million' on
CPI
P) '
'
P) i
:
27
Variable
Name
Variable
KGR
Growth
TAXREV
Tax
K46
Capital
List
Variable
Rate
of
Revenues
(Million
P)
(Million
Exogenous
Name Breeding
Stock
(Real, CGN
Government
Orchard
P)
Million
Government
P)
Construction
(Nominal;
Million
P)
Dummy
Variable
for
XGDS
DUM94
Dummy
Variable
for
DTAX
ER
Exchange
GNPJAP
Gross
i
Rate National
(Real;
Product
Billion
IINV
Increase
MS
Money
in
NFA
Net
Foreign
NFIA
Net
Factor
Stocks end Assets Income
Million
of
from
(Millions)
STATD
Statistical
Discrepancy
TL XSV
_
_
P)
Abroad
Price
for
Imports
(Real;
Million
P)
Tariff Time Total
_
P)
P)
Population
•'
P)
(Million
(Million
POP
TIME
Million
year
Implicit Dollar (1985=100)
_
Japan
(Real;
PMDOL
TARF
of
Yen)
Supply,
(Real;
Development
Consumption
(Nominal; CGOVN
Description
and
Million
P)
Variables
Variable
BREEDR
DUM80
K46
Stock
of
Description
Export
Period Liquidity, -j. of
Services
end
of • year (Real;
,
(Mill_on
Million
P)
P)
Table
Variable
A.3.
MODEL
VALIDATION
(1976
MAPE
to
1994)
RMSPE
THEIL
Behavioral • ,JL......
CP
1 .95
2 .56
0 .0121
IDER
12 .40
15 .12
0 .0621
CONSPR
14.04
18.70
0. 0842
MGDS
i0.79
14.27
.,.....
0. 0636
, ,
MSV
13.38
-,.
14.67
• ,,,.m
LWPI
1.09
PGNP
6 .30
0. 0787
,..
i. 35
0. 0068
8 .24
0 .0337
II.
CPI
7.38
9.65
0. 0395
PCG
3.48
4.39
0.0198
PCGOV
8.76
10.67
0. 0465
PMGDS
1 .18
2 .03
0 .0140
I0 .30
12 .79
0 .0282
4.40
5.38
0. 0164
TBILL
19 .26
25 .74
0 .1238
KCAR
8 .47
9 .83
0 .0500
XGDS
8.52
i0.70
0. 0511
GDP
3.21
4.92
0. 0227
GNP
3.27
5.05
0. 0228
DTAX TOTTAX
Iden ti ti es
..,
,.
DEFNEW
69 .47
118 .43
0 .1455
TRADET
i0:79
13 .86
0 .0538
TRADENEW
43" 43
74.58
0. 1176
•i94 ._48
674..91
INFL
_
KG_
2037
'.'
!, "
TAx_Ev
0.3038
28 _2
0 0716
•6.39
0.016_0
J, ...,.
5.08 !
WPI
_•
i
6 •24
:
•
7 .76
0 •04i6
29
Variable K46
MAPE
RMSPE
2 .27
Notes: (i) MAPE - Mean Absolute Percentage Error (2) RMSPE - Root Mean Square Percentage Error
2 .69
THEIL 0 .0128