Date

4-2009

Degree

Bachelor of Science in Economics

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Niño Alejandro Q. Manalo

Abstract

The object of this paper is to evaluate the vulnerability of the Philippine economy and determine the probability of occurrence of a currency crisis given the present financial crisis in the United States. The study uses the early warning system developed by Zhuang and Dowling that is based on the “signaling approach”, which monitors several indicators that tend to exhibit an unusual behavior in the periods preceding a crisis. When an indicator exceeds (or falls below) a threshold, then it is said to issue a “signal” that a currency crisis may occur in the succeeding period. Results show that the Philippine economy is very vulnerable to a currency crisis in light of the existing U.S. Financial Crisis based from the number of warning signals issued by the leading indicators. Furthermore, the probability that a currency crisis might occur in the Philippines has already reached above 50 percent as economic indicators continue to issue warning signals. The study’s results reinforce the earlier study of Gesmundo (2005), who also used the Zhuang-Dowling early warning system model to predict and assess the vulnerability of the Philippine economy to the Asian Financial Crisis. Comparisons revealed similar factors that trigger currency crisis in the Philippines which includes the rapid depreciation and appreciation of the real exchange rate and the real effective exchange rate respectively, increasing trade and current account deficit, ballooning fiscal deficit, rapid enlargement of domestic credit, and economic slowdown. By closely monitoring the fiscal and financial sector, the government can avert the occurrence of future currency crisis in the Philippines. On the other hand, monitoring the performance of the real exchange rate indicator can guide the government in predicting the likelihood of a currency crisis happening given an existing foreign financial crisis.

Language

English

Call Number

LG 993.5 2009 E2 O23

Document Type

Thesis

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