Date

4-2009

Degree

Bachelor of Science in Economics

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Anna Floresca F. Abrina

Abstract

Inflation is one of the major public concerns as it directly affects the purchasing power of an individual. Moreover, its impact on the performance of an economy and on formulation of economic decisions is of considerable importance. Using time series data on a quarterly basis for the period 1985 - 2008, the economic factors that significantly affect inflation – both in the short and long run – were determined. The forecasting abilities of the models employed in the study were also analyzed and examined. Through the ordinary least squares regression, the variables that significantly affect inflation for each of the six models in the study were determined. For the purpose of integration, a general model was built. Beforehand, tests for correlation and GrangerCausality were done to determine the variables to be included in the general model. Upon running a regression on the general model, it was found that the gross domestic product, interest rate, bank credit to the private sector, the real effective exchange rate and the wage rate were the variables that significantly affect inflation in the Philippines in the short run. To determine which among the six models had the most accurate forecast, several forecasting statistics were examined. Upon comparison, it was concluded that the model for the Cost-Push Theory of inflation had the best forecast since it yielded the most number of “good” forecasting statistics. However, when a forecast for inflation using the general model was done, it was found that the general model had superior forecasting ability as compared to the six models adopted for this study. A cointegration analysis was also done to determine if the variables in the study significantly affect inflation in the long run. Several pretests were first executed to determine the variables to be included for cointegration analysis. Results of the analysis show that oil price and the real effective exchange rate were cointegrated with inflation, both exhibiting a negative relationship with inflation in the long run.

Language

English

Call Number

LG 993.5 2009 E2 O68

Document Type

Thesis

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