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Interest rate-exchange rate dynamics in the Philippines: a DCC analysis

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  • Carlos Bautista

Abstract

This article examines interest rate-exchange rate interaction using dynamic conditional correlation (DCC) analysis, a multivariate GARCH method. Weekly Philippine data from 1988 to 2000 are used in the study. The results show that the correlation between these variables is far from constant. Structural changes in the correlation structure are largely seen to be the effects of policies or policy responses to exogenous events. The shift in the direction of correlation, observed after the liberalization of the capital markets in 1993, is shown as evidence. Strong positive correlations observed during the two crisis episodes covered by the study present evidence of ineffective interest rate defense of the currency.

Suggested Citation

  • Carlos Bautista, 2003. "Interest rate-exchange rate dynamics in the Philippines: a DCC analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 10(2), pages 107-111.
    • Handle: RePEc:taf:apeclt:v:10:y:2003:i:2:p:107-111
    DOI: 10.1080/1350485022000040970
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    Cited by:

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    3. Sensoy, Ahmet & Sobaci, Cihat, 2014. "Effects of volatility shocks on the dynamic linkages between exchange rate, interest rate and the stock market: The case of Turkey," Economic Modelling, Elsevier, vol. 43(C), pages 448-457.
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    7. Andrieș, Alin Marius & Căpraru, Bogdan & Ihnatov, Iulian & Tiwari, Aviral Kumar, 2017. "The relationship between exchange rates and interest rates in a small open emerging economy: The case of Romania," Economic Modelling, Elsevier, vol. 67(C), pages 261-274.
    8. Bautista, Carlos C., 2003. "Estimates of output gaps in four Southeast Asian countries," Economics Letters, Elsevier, vol. 80(3), pages 365-371, September.
    9. Kuper, Gerard H. & Lestano, 2007. "Dynamic conditional correlation analysis of financial market interdependence: An application to Thailand and Indonesia," Journal of Asian Economics, Elsevier, vol. 18(4), pages 670-684, August.
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    14. Mapa, Dennis S. & Paz, Nino Joseph I. & Eustaquio, John D. & Mindanao, Miguel Antonio C., 2014. "Forecasting Time-Varying Correlation using the Dynamic Conditional Correlation (DCC) Model," MPRA Paper 55861, University Library of Munich, Germany.
    15. Syriopoulos, Theodore & Roumpis, Efthimios, 2009. "Dynamic correlations and volatility effects in the Balkan equity markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(4), pages 565-587, October.

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