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In times of weak economy, government should employ EXPANSIONARY policy. This aims to yield a higher output and lower unemployment. One way to do this is via our fiscal policy wherein government spending is increased and/or taxes are lowered.
Why the hell is the govenment imposing more tax? To buy Mikey Arroyo a new million dollar house?
Tuesday, September 8, 2009
Monday, August 24, 2009
FOREX Reserves
http://business.inquirer.net/money/topstories/view/20090824-221844/Forex-reserves-in-Asia-excessive--ADB
“Holding reserves provides benefits, in particular protection against unexpected shortages of foreign exchange and currency crisis, but it also entails a number of substantial costs … The larger the excess reserves, the larger will be the loss of national welfare,” ADB said in a recent paper written by ADB economists Donghyun Park and Gemma Estrada.
In the case of the Philippines, its reserves continue to register record highs, reaching $40 billion as of end-July.
The ADB added that ideally, foreign currency reserves should be equivalent to four months worth of imports.
The Philippines’ reserves, meanwhile, are enough to cover 6.9 months worth of imports.
“Holding reserves provides benefits, in particular protection against unexpected shortages of foreign exchange and currency crisis, but it also entails a number of substantial costs … The larger the excess reserves, the larger will be the loss of national welfare,” ADB said in a recent paper written by ADB economists Donghyun Park and Gemma Estrada.
In the case of the Philippines, its reserves continue to register record highs, reaching $40 billion as of end-July.
The ADB added that ideally, foreign currency reserves should be equivalent to four months worth of imports.
The Philippines’ reserves, meanwhile, are enough to cover 6.9 months worth of imports.
Saturday, July 11, 2009
Philippines cuts interest rates to spur economy
Read this from my twitter feed: Philippines cuts interest rates to spur economy. Made me want to give myself a crash course on monetary policy.
Monetary policy is the process by which the government, central bank, or monetary authority of a country controls the supply of money, availability of money, and cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy. Monetary policy can either be expansionary, or contractionary, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply.
Here are a our current numbers: current inflation rate dropped to 1.5% this June -- the lowest in 22 years. Quarterly figures of the NSO show that the Philippines' unemployment declined to 7.5% in Apr 2009 from 8% in Apr 2008. Our current GDP for 2008 Q4 is P2,126.8B, growing only a meager 0.3 percent.
Interpreting the data we have, inflation rate dropped (that's neither good nor bad) and unemployment rate declined (that's good), however GDP growth fell short of expectations (not good).
So why the decision to cut interest rates if unemployment is not our problem? It's rather a special case that our GDP is down while our umemployment rate is also down. They are hoping to spur the GDP growth by this. Since the economic growth is measured by GDP, slowing down of GDP growth indicates that the economy is slowing down. In such a situations, monetary policy is used to change the scenario. In our current situation, government decreased the interst rates so that people will spend on products and thus velocity of money supply will ramp up. Banks will be able to lend more to people, people can then use that money for new projects, new projects will cause new jobs and GDP growth (and so forth the multiplier effect).
Monetary policy is the process by which the government, central bank, or monetary authority of a country controls the supply of money, availability of money, and cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy. Monetary policy can either be expansionary, or contractionary, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply.
The article says that last week Thursday (July 9, 2009), the Philippine Central Bank cut interest rates by a quarter percent point: overnight borrowing rate (the interest Central Bank pays to banks when borrowing from them) was cut to 4 percent, while the overnight lending rate (rate that banks pay when borrowing from the central bank) was cut to 6 percent.
From the looks of it, we are undergoing expansionally fiscal policy which is said to traditionally combat unemployment (whereas contractionary combats inflation).Here are a our current numbers: current inflation rate dropped to 1.5% this June -- the lowest in 22 years. Quarterly figures of the NSO show that the Philippines' unemployment declined to 7.5% in Apr 2009 from 8% in Apr 2008. Our current GDP for 2008 Q4 is P2,126.8B, growing only a meager 0.3 percent.
Interpreting the data we have, inflation rate dropped (that's neither good nor bad) and unemployment rate declined (that's good), however GDP growth fell short of expectations (not good).
So why the decision to cut interest rates if unemployment is not our problem? It's rather a special case that our GDP is down while our umemployment rate is also down. They are hoping to spur the GDP growth by this. Since the economic growth is measured by GDP, slowing down of GDP growth indicates that the economy is slowing down. In such a situations, monetary policy is used to change the scenario. In our current situation, government decreased the interst rates so that people will spend on products and thus velocity of money supply will ramp up. Banks will be able to lend more to people, people can then use that money for new projects, new projects will cause new jobs and GDP growth (and so forth the multiplier effect).
Monday, July 6, 2009
On "realistic" models
On the first day of my macro-eco class, my professor was discussing models (the economic kind, that is). He had me stupefied when he asked me what my response is if people ask me "What are we gonna do with your simplified models? They don't model real life, they are useless." At that time my mind was thinking about what kind of burger I will have after class because I was so darn hungry. After a few seconds of silence, hoping that he will get that I have no idea, I stammered and lamely replied "Ahm... er... wrong assumptions? B-b-because we have wrong assumptions?" Nope it wasn't, according to him, models are supposed to be simple and not necessarily reflect reality.
That got me to thinking. And I wonder if I agree. What are we supposed to do with non-realistic models? Economics has a great deal of theories. It seems that on paper, its able to solve everything. But looking around. Our economy is not perfect. I believe all the theories we study are logical and practical, but they will only be useful if we are able to apply them in the real life and eventually help us efficiently allocate resources. Fictitious models, however interesting and logical they may be, are of no use.
So what do we do with them? Take the theories, apply them, but make sure that it's applied on the right set of assumptions (backed by correct data of course). I remember an upperclassmen in my undergrad study saying to me the only reason why Economics fails to solve all problems in the world is because they have the wrong assumptions. I fully believe him.
That being said, I have two things on my mind:
(1) I love the book FREAKONOMICS - it simply presents unconventional findings and proves them correct by showing actual data. Regression analysis rules!
(2) I'm excited to take up statistics this semester. I've yet to make Dr Rufino (undergrade forecasting prof) proud of me again. The only bummer is that my class is 3 hours long in the evening, and my teacher just reads from his slides. Ugh.
That got me to thinking. And I wonder if I agree. What are we supposed to do with non-realistic models? Economics has a great deal of theories. It seems that on paper, its able to solve everything. But looking around. Our economy is not perfect. I believe all the theories we study are logical and practical, but they will only be useful if we are able to apply them in the real life and eventually help us efficiently allocate resources. Fictitious models, however interesting and logical they may be, are of no use.
So what do we do with them? Take the theories, apply them, but make sure that it's applied on the right set of assumptions (backed by correct data of course). I remember an upperclassmen in my undergrad study saying to me the only reason why Economics fails to solve all problems in the world is because they have the wrong assumptions. I fully believe him.
That being said, I have two things on my mind:
(1) I love the book FREAKONOMICS - it simply presents unconventional findings and proves them correct by showing actual data. Regression analysis rules!
(2) I'm excited to take up statistics this semester. I've yet to make Dr Rufino (undergrade forecasting prof) proud of me again. The only bummer is that my class is 3 hours long in the evening, and my teacher just reads from his slides. Ugh.
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