The Dollarization Debate: Concepts and Issues

The East Asian financial crisis of 1997 has sparked a vigorous debate on the appropriate exchange rate regime that an economy must adopt. Two extreme options are said to be considered: (a) free float as recommended by the IMF, or(b) very hard peg or dollarization. This Policy Notes discusses the concept of dollarization and the issues attendant to it as it affects the conduct of monetary policy.exchange rate policy, dollarization, seigniorage, monetary policy

Managing Capital Flows in the Philippines

How do countries manage the surge in capital flows in their economies? Are capital controls the answer? This Note looks deeper into the matter.capital flows, Philippines, basic education financing, business regulations, capital controls, sterilized intervention

A Note on the Competitiveness Debate

This article deals with the concept of competitiveness. Competitiveness is technically a firm-level concept. However, it is oftentimes extended to the national level--the idea of a country's 'international competitiveness' with the following analogies: market share-->export share of country; price-->real effective exchange rate or unit labor cost; profitability-->long-run economic growth. The concept of national competitiveness is faulty, in the words of Paul Krugman it has become a 'dangerous obsession.' However, national or government policies do have an impact on firm level competitiveness. The only concept related to firm level competitiveness that can be extended to the national level without ambiguity is technological capability. Since technological capability is at the heart of competitiveness, countries must address this issue squarely. One course of action is to adopt a strategic approach to foreign direct investment--as opposed to a passive strategy--similar to what Malaysia and Singapore did.competitiveness, technology capability

Regional Cooperation in East Asia Amid Global Economic Turmoil

With the global economy currently in turmoil amid soaring fuel and food prices and a looming US recession, is there a role for regional cooperation such as the Pan-Beibu Gulf Economic Cooperation (PBGEC) to help address the macroeconomic "imbalance" that characterizes the global economic situation? The author says "yes" and explains why.regional cooperation, East Asia

Macroeconomic Impact of a Tariff Reduction: A Three-Gap Analysis with Model Simulations

Using a three-gap model, it can be shown that a reduction in the tariff level will lead to an unambiguous decline in the GDP growth rate if it results in a reduction of the surplus of the government’s primary account. Empirical results using Philippine data show that this condition is satisfied. Since FDI is crucial in breaking the economic gridlock brought about by capital inflows, policymakers should determine whether greater macroeconomic instability that results from larger fiscal and trade deficits can be offset by the more liberalized economic environment in attracting FDI. It may also be the case, however, that the greater macroeconomic instability will eventually countervail any benefits from microeconomic reform.savings gap, foreign exchange gap, fiscal gap, savings

Dollarization: Concepts and Implications for Monetary and Exchange Rate Policy in the Philippines

Currency substitution implies the greater share of foreign currency in the asset holdings of domestic residents. Dollarization is the complete replacement of the local currency- in this case, the peso- by a foreign currency, most likely the US dollar. The paper finds that dollarization or official dollarization has both its costs and benefits but it is not a viable option for the Philippines at the moment.exchange rate policy, monetary policy

Economic Reform and Macroeconomic Stability: A Delicate Balance

The Philippines has escaped the worst of the Asian crisis. It is now the authority’s task to ensure that reforms are not overdone with trade-offs.Policymakers should therefore help minimize its adverse impacts on policy via creation of relevant institutions and establishment of regulatory frameworks.Asian financial crisis, trade liberalization, financial liberalization, economic reform, macroeconomic stabilization

The Philippines: Recent Performance, Prospects for 1990-1991, Policy and Development Issues

This paper describes the nature of structural adjustments necessary for the economy to bounce back to life. This is accompanied by an analysis of the performance of the Philippine economy in 1989.The prognosis for the next two years is also examined.economic recovery, economic growth, economic reform

East Asian Currencies: Is There Room for (Further) Appreciation?

Should the various currencies in East Asia led by the Chinese yuan be appreciated or revalued? Dr. Josef Yap examines the levels of valuation of these currencies by looking at the behavior of their real effective exchange rates over time to determine whether indeed, there is room for the further appreciation of these East Asian currencies. Read on for his finding and recommendation.East Asian currency valuation, real effective exchange rate

Macroeconomic Impact of a Tariff Reduction: A Three-Gap Analysis with Model Simulations

Using a three-gap model, it can be shown that a reduction in the tariff level will lead to an unambiguous decline in the GDP growth rate if it results in a reduction of the surplus of the government’s primary account. Empirical results using Philippine data show that this condition is satisfied. Since FDI is crucial in breaking the economic gridlock brought about by capital inflows, policymakers should determine whether greater macroeconomic instability that results from larger fiscal and trade deficits can be offset by the more liberalized economic environment in attracting FDI. It may also be the case, however, that the greater macroeconomic instability will eventually countervail any benefits from microeconomic reform.savings gap, foreign exchange gap, fiscal gap, savings