The Impact of the US Unconventional Monetary Policy and Its Normalization in the Philippines: A Capital Flow Perspective

This study presents an empirical analysis of the impact of the US unconventional monetary policy and its normalization on the dynamics of relatively volatile capital inflows (i.e., portfolio equity, portfolio debt securities, and bank and money market) into the Philippines using monthly data from January 2008 to March 2016. Results are obtained using a structural vector autoregression (SVAR) model, interacting both “push” and “pull” factors of capital inflows into the SVAR system. Overall, results show that the effects of these US monetary policy shocks on the aforementioned volatile capital inflows are minimal when scaled in terms of gross domestic product (GDP). The findings also suggest that, of the three volatile capital inflows, the impact of these shocks is more pronounced on portfolio debt securities, as well as on bank and money market inflows. Meanwhile, the impact on portfolio equity inflows is very limited. Additionally, the persistence of these shocks is seen to last from one to six months.