Jesson Rey F. Sabado


This paper identifies the determinants of the balance of payments fluctuations in the Philippines. Specifically, it presented the trends and movements of a balance of payments, interest rate, inflation rate, gross domestic product growth rate, and real exchange from 1981 to 2019. The study used Johansen Co-integration, Granger Causality, and Vector Autoregression (VAR) models to analyze this study. Johansen's Co-integration analysis revealed that the determinants of the balance of payments interest rate (IR), inflation rate (INF), an exchange rate (EX), and real GDP are rejected at a 5% significant level. On the other hand, unrestricted VAR model, there exists a relationship between the balance of payments (BOP), interest rate (IR), and inflation rate (INF). Granger causality test results revealed that BOP does not Granger cause IR and INF does not Granger cause BOP are rejected at the 5% significant level because the causality test results are significant. BOP and IR have a unidirectional relationship. Moreover, results show that there is unidirectional causality generally running from the balance of payment (BOP) to the interest rate (IR) and inflation rate (INF) to the balance of payment (BOP).

JEL: H10; H20; H30


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balance of payments, granger causality, vector autoregressive (VAR) analysis

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