Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the BSP, as an inflation-targeting central bank, is changing the way it projects macroeconomic outlook based on the International Monetary Fund’s (IMF) forecasting and policy analysis systems (FPAS) to improve the Philippines’ policy analysis and review.

“The BSP is preparing to transition to a working FPAS for the generation of projections for inflation and other major macroeconomic variables to guide its existing economic surveillance activities,” said Diokno. The FPAS is the standard system adopted by many inflation-targeting central banks.

Diokno said the BSP is also currently studying the Growth-at-Risk (GaR) approach as part of its surveillance toolkits.

“Another ongoing research is the use of (the) GaR framework developed by the IMF to assess the impact of the current macrofinancial conditions on the future growth prospects of the country,” he said.

Diokno said all BSP surveillance systems including those in development, are not conducted in isolation from other economic and financial market analytics. “These are intended to be integrated in the work and process of policy formulation. These tools will be particularly useful in strengthening policies that enhance key macroeconomic buffers and shield the economy from future shocks,” he said.

The IMF explained GaR as linking macrofinancial conditions to future growth distribution and that its “main strength is its ability to assess the entire distribution of future GDP growth (in contrast to point forecasts), quantify macrofinancial risks in terms of growth, and monitor the evolution of risks to economic activity over time.”

Diokno said the BSP’s existing collaboration with the University of the Philippines for its Big Data project is one more crucial part of maintaining monetary stability and supporting growth by the accurate monitoring and capture of all kinds of data for processing and analysis in aid of timely policy decisions.

“At the same, the BSP like other central banks, recognize the potential of Big Data as a supplementary source for the effective delivery of its price and financial stability mandates,” he said. Last October 2019, the BSP embarked on a Big Data project in collaboration with experts from UP. “In addition to the Big Data analytics, the BSP has also strengthened its domestic economic surveillance on the regional level through its various branches across the country,” said Diokno.

The BSP has adopted the inflation-targeting approach in 2002 and since then, it has continued to develop forecasting models in the formulation of BSP’s monetary policy decisions which are forward-looking and data-driven.

The BSP’s policy analysis model for the Philippines or PAMPh is one of these models that are patterned after the FPAS.

In a BSP paper published in December 2020, the PAMPh is described as complementing “the current workhorse macro model of the BSP for monetary policy analysis and medium-term forecasting.”

The paper said the model is a platform “to synthesize near-term forecasts generated by econometric models with expert judgment to form a theoretically consistent and story-driven outlook of the Philippine economy”, it generates a medium-term policy outlook that is consistent with the inflation target, and it “provides a tool for analyzing the transmission of shocks to key variables.”

As a forecasting model, the BSP said the PAMPh has to continuously undergo assessment and to re-specify its parameters. There are recommendations to add a new sector for further insights such as “disaggregation of the demand components” to enable the BSP to have “deeper insights on what drives growth”.

Last Thursday, Diokno said to improve its macroeconomic surveillance, the data-dependent BSP has adopted mobility data and texts analytics from newspaper articles to mine for financial market information.