Template-Type: ReDIF-Article 1.0 Author-Name: Ma. Joy V. Abrenica Author-Email: ma.joyabrenica@yahoo.com Author-Workplace-Name: University of the Philippines School of Economics Title: Detecting and measuring market power in the Philippine wholesale electricity market Abstract: During the first quarter of commercial operation of the Philippine wholesale electricity market, an unexpected surge in clearing prices led to an investigation of public utilities accused of collusion. The paper examines the regulatory response to the first antitrust case in the electricity market. Using actual offers submitted by generators to the market operator and applying a variant of competitive benchmark analysis, the paper traces the price surge to strategic bidding and capacity withholding by public generators. Classification-JEL: L32, L44, L94 Keywords: market power, wholesale lectricity market, strategic bidding Journal: Philippine Review of Economics Pages: 5-46 Volume: 46 Issue: 2 Year: 2009 Month: December File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/2/669 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:5-46 Template-Type: ReDIF-Article 1.0 Author-Name: Lawrence Dacuycuy Author-Email: Author-Workplace-Name: De La Salle University, Philippines Title: Testing for omitted variables in partially linear regression models Abstract: This study conducts Monte Carlo simulation exercises to determine the finite sample properties of the Fan-Li test [1996] when the interest focuses on uncovering the impact of omitted variables on the semiparametric partially linear model (PLM). It essentially subjects the said test to various empirical situations such as the case of variable omissions in the linear or nonlinear components of the model or both. The study finds that the Fan-Li test achieves considerable power in rejecting the invalid null hypothesis. However, actual sizes still deviate from their respective nominal sizes. Classification-JEL: C15, C14 Keywords: partially linear model, semiparametric models, nonparametric consistent tests Journal: Philippine Review of Economics Pages: 47-61 Volume: 46 Issue: 2 Year: 2009 Month: December File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/3/666 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:47-61 Template-Type: ReDIF-Article 1.0 Author-Name: Michael M. Alba Author-Email: Author-Workplace-Name: De La Salle University, Philippines Author-Name: Roehlano M. Briones Author-Email: Author-Workplace-Name: Philippine Institute for Development Studies Title: A method for calibrating input (and output) price elasticities* Abstract: We propose a theoretically consistent method for calibrating input (and output) price elasticities (of agricultural crops) from a minimal set of given estimates. Our review of production theory suggests three starting points for the exercise : (a) inputs and outputs have to be classified by input nonjointness, (b) production functions may be assumed to be linearly homogeneous, and (c) given an n x n (symmetric) matrix of elasticities, which has n(n+1)/2 distinct cells, the values of n(n-1)/2 of the distinct cells must be known to solve the n unknown elasticities. Exploiting Shephard’s Lemma and Euler’s Theorem, we work out the method for a cost function with four inputs. We also provide a numerical example involving a 9 x 9 matrix of a multiple-output profit function. Classification-JEL: C63, D21, Q12 Keywords: calibration, elasticities, substitution matrix, cost function, Euler's Theorem, Shephard's Lemma Journal: Philippine Review of Economics Pages: 63-89 Volume: 46 Issue: 2 Year: 2009 Month: December File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/4/667 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:63-89 Template-Type: ReDIF-Article 1.0 Author-Name: Jose Oliver Q. Suaiso Author-Email: Author-Workplace-Name: University of the Philippines School of Statistics Author-Name: Dennis S. Mapa Author-Email: Author-Workplace-Name: University of the Philippines School of Statistics Title: Measuring market risk using extreme value theory Abstract: The adoption of Basel II standards by the Bangko Sentral ng Pilipinas initiates financial institutions to develop value-at-risk (VaR)models to measure market risk. In this paper, two VaR models are considered using the peaks-over-threshold (POT) approach of the extreme value theory (EVT) : (1) static EVT model, which is the straightforward application of pot to the bond benchmark rates; and (2) dynamic evt model, which applies pot to the residuals of the fitted AR-GARCH model. The results are compared with traditional VaR methods such as RiskMetrics and AR-GARCH-type models. The relative size, accuracy, and efficiency of the models are assessed using mean relative bias, backtesting, likelihood ratio tests, loss function, mean relative scaled bias, and computation of market risk charge. Findings show that the dynamic EVT model can capture market risk conservatively, accurately, and efficiently. It is also practical to use because it has the potential to lower a bank’s capital requirements. Comparing the two EVT models, the dynamic model is better than static as the former can address some issues in risk measurement and effectively capture market risks. Classification-JEL: C01, C22, G12 Keywords: extreme value theory, peaks-over-threshold, value-at-risk, market risk, risk management Journal: Philippine Review of Economics Pages: 91-121 Volume: 46 Issue: 2 Year: 2009 Month: December File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/5/670 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:91-121 Template-Type: ReDIF-Article 1.0 Author-Name: Aniceto C. Orbeta Jr. Author-Email: Author-Workplace-Name: Philippine Institute for Development Studies Title: Number of children and their education in Philippine households Abstract: This paper shows how large family size can be an important contributor to poverty in the Philippines. It examines one of the mechanisms behind this link by focusing on the relation between the number of children and school attendance of children 6-24 years old. It surveys the international literature to establish how the problem has been approached and what the results are for other countries. It then formulates and tests a model using a nationally representative household survey data for the Philippines to explain what determines the decision to keep children in school. The model specifically considered the endogeneity of the number of children-in-school attendance equations. Classification-JEL: J13, I21 Keywords: family size, school attendance, Philippines Journal: Philippine Review of Economics Pages: 123-154 Volume: 46 Issue: 2 Year: 2009 Month: December File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/6/672 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:123-154 Template-Type: ReDIF-Article 1.0 Author-Name: Joseph J. Capuno Author-Email: jjcapuno@gmail.com Author-Workplace-Name: University of the Philippines School of Economics Author-Name: Stella A. Quimbo Author-Email: stella_quimbo@yahoo.com Author-Workplace-Name: University of the Philippines School of Economics Author-Name: Carlos Antonio R. Tan Jr. Author-Workplace-Name: University of the Philippines School of Economics Author-Name: Aleli D. Kraft Author-Email: adpkraft@econ.upd.edu.ph Author-Workplace-Name: University of the Philippines School of Economics Title: Household out-of-pocket health spending, health insurance coverage, and children’s school attendance in the Philippines Abstract: The microeconomics of family posits that households value and promote the welfare of their members, but given limited resources, their investments in terms of time and money in their children’s health and education and expenditures on other consumption goods are necessarily jointly determined. In this paper, we develop and test a household allocation model that highlights the links between out-of-pocket health spending, health insurance, and schooling decisions. Applying the model on subsamples of households from the 2004 and 2007 Annual Poverty Indicators Survey, we find that insurance coverage with PhilHealth tends to increase the share of health in total expenditures, which in turn reduces the likelihood of school attendance. We also find that PhilHealth coverage has a positive, significant, and independent effect on the likelihood of school attendance. These suggest that the design of social health insurance and other social protection programs, including household-level antipoverty programs, must take into account the joint determination of health, education, and other household decisions to achieve their desired overall impact on household welfare. Classification-JEL: I12, I21, D13 Keywords: out-of-pocket health expenditures, health insurance, schooling Journal: Philippine Review of Economics Pages: 155-181 Volume: 46 Issue: 2 Year: 2009 Month: December File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/7/668 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:155-181 Template-Type: ReDIF-Article 1.0 Author-Name: Jonna P. Estudillo Author-Email: jonna@grips.ac.jp Author-Workplace-Name: Foundation for Advanced Studies on International Development, Tokyo, Japan Author-Name: Charity Gay Ramos Author-Email: Author-Workplace-Name: Joint Graduate Program, Tokyo, Japan, and National Economic and Development Authority, Philippines Author-Name: Keijiro Otsuka Author-Email: Author-Workplace-Name: Foundation for Advanced Studies on International Development, Tokyo, Japan Title: Geography and the evolution of rural nonfarm sector in the Philippines, 1988-2006 Abstract: This paper aims to assess the changing impact of distance on the development of rural nonfarm sector by exploring the changing allocation of rural labor force between the farm and nonfarm sectors in the Philippines using provincial-level data from 1988 to 2006. The impact of distance of a province from a major city on the growth of its rural nonfarm sector did not change over time because of the concentration of infrastructure developments in provinces located near the major cities. A well-developed infrastructure system and the availability of an educated labor force appear to be the most potent stimuli in the transformation of the rural economies as these two factors have simultaneously induced the reallocation of rural labor force away from the farm toward the non-tradable sectors such as construction, trade, and transport. The labor absorption capacity of the rural tradable sector (e.g., manufacturing) has been critically affected by the improvements in electricity and concrete roads, not by the quality of human capital, as this sector continues to employ unskilled labor. Classification-JEL: O15, O18, O33, O53 Keywords: development of rural nonfarm sector, modernizing factors, modern agricultural technology, Philippines, Asia Journal: Philippine Review of Economics Pages: 183-219 Volume: 46 Issue: 2 Year: 2009 Month: December File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/1/676 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:183-219 Template-Type: ReDIF-Article 1.0 Author-Name: Cristela Goce-Dakila Author-Email: Author-Workplace-Name: De La Salle University, Philippines Author-Name: Francisco G. Dakila Jr. Author-Email: Author-Workplace-Name: Bangko Sentral ng Pilipinas Title: Spatial impact of overseas Filipino workers’ remittances on the Philippine economy Abstract: Remittance inflows from overseas Filipino workers have become the second-largest source of foreign exchange for the Philippine economy. In view of this, we assess the vulnerability of Philippine households to an exogenous shock in the form of a five-percent decline in remittances. We utilize a spatial computable general equilibrium model based on a five-region social accounting matrix. A three-level production function is specified, namely, Cobb-Douglas between labor and capital to produce value added; then Leontief between non-transport inputs and value added to produce output net of transport, which is then combined with transport inputs at the third level, using again a Cobb-Douglas production function. Capital and labor incomes accrue to the households who then allocate these to consumption and savings with a constant marginal propensity to consume. Overseas remittances enter as transfer payments to households. Consumption is allocated among different commodities, using a Cobb-Douglas utility function. Final demand is then built up in a standard way. Results indicate that in absolute terms, Northern Luzon middle- and low-income households bear the highest percentage reductions in income. On the other hand, Mindanao households are the least vulnerable. These results are then compared with those of a two-region model using a single-level Leontief production function and Cobb-Douglas utility function. Classification-JEL: F24, D58 Keywords: spatial impact, overseas Filipino Workers' remittances, computable general equilibrium modeling, Philippine economy Journal: Philippine Review of Economics Pages: 221-241 Volume: 46 Issue: 2 Year: 2009 Month: December File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/8/674 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:221-241 Template-Type: ReDIF-Article 1.0 Author-Name: Carlos C. Bautista Author-Email: ccbautista@gmail.com Author-Workplace-Name: University of the Philippines College of Business Administration Author-Name: Roberto S. Mariano Author-Email: Author-Workplace-Name: School of Economics and Social Sciences, Singapore Management University Author-Name: Bayani Victor Bawagan Author-Email: Author-Workplace-Name: National Economic and Development Authority, Philippines Title: The NEDA quarterly macroeconomic model: theoretical structure and some empirical results Abstract: This paper presents the National Economic and Development Authority’s (NEDA) quarterly macroeconomic model (QMM) of the Philippines and discusses the results of historical and policy simulations using the model. With its strict adherence to modern macroeconomic general equilibrium analysis, the current model deviates substantially from its predecessor. The core block is based on a general equilibrium macro-model with monopolistic competition à la Blanchard and Kiyotaki [1989] that allows the derivation of the domestic price level (PGDP) and aggregate output (GDP). The real and monetary/external sectors of the model are linked through an open economy is-lm aggregate demand framework, which embeds the portfolio balance approach to exchange rate determination; the model assumes a fully flexible exchange rate regime. The model distinguishes between domestic inflation, computed as the PGDP percent change and consumer price inflation (CPI) percent change. The latter is derived econometrically as the weighted average of domestic inflation and imported goods inflation. Expected inflation is assumed to be a weighted average of forward-looking and backward-looking expectations of individuals. The historical simulation results show the model’s adequate tracking ability. Fifteen policy experiments are presented in this paper. For each experiment, an exogenous/policy variable is changed to determine if it has a stagflationary, recessionary, or expansionary effect. The results for all experiments show that their effects on the price level and output conform to predictions of economic theory. The model is clearly a work-in-progress as yearly updates are required to maintain the model. Classification-JEL: E27, E37, E47 Keywords: macroeconometric model, historical simulation, Philippines Journal: Philippine Review of Economics Pages: 240-260 Volume: 46 Issue: 2 Year: 2009 Month: December File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/9/671 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:240-260 Template-Type: ReDIF-Article 1.0 Author-Name: Josef T. Yap Author-Email: Author-Workplace-Name: Philippine Institute for Development Studies Title: Evaluating sterilized intervention under an inflation-targeting framework: the case of the Philippines Abstract: After the 1997 financial crisis, several East Asian economies, including the Philippines, adopted an inflation-targeting framework. The shift in the policy stance of the Bangko Sentral ng Pilipinas (BSP) came with the acknowledgement that a flexible exchange rate framework is better suited to cushioning domestic economic performance from external disturbances than fixed nominal exchange rates. However, many inflation-targeting central banks, including the bsp, have continued to intervene in the foreign exchange market. This paper evaluates the impact of sterilized intervention using an economy-wide macroeconometric model instead of a partial-equilibrium framework. A loss function is used to evaluate the effectiveness of sterilized intervention, the latter being modeled as incorporating the exchange rate in the monetary authority’s reaction function. The key features of the New Keynesian macroeconometric model are as follows : (a) the policy interest rate of the BSP responds to inflationary, output gap, and exchange rate pressures; (b) changes in the BSP policy rate affect changes in the nominal exchange rate based on the uncovered interest parity (UIP) condition; and (c) the nominal peso-dollar rate is an effective transmission mechanism, as both direct and indirect pass-through effects to inflation are relatively above average. Theory indicates that incorporating the exchange rate in the BSP reaction function may lead to unintended consequences. Simulation results show that such a policy has a favorable outcome if the exchange rate also appears in the bsp’s objective function. Otherwise the exchange rate has to be dropped from the reaction function. Classification-JEL: C32, E52 Keywords: foreign exchange intervention, monetary policy rule, central bank objective function Journal: Philippine Review of Economics Pages: 261-282 Volume: 46 Issue: 2 Year: 2009 Month: December File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/10/673 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:261-282 Template-Type: ReDIF-Article 1.0 Author-Name: Robert Teh Author-Email: Author-Workplace-Name: World Trade Organization Title: Anti-dumping actions and macroeconomic fluctuations Abstract: Using a significantly larger panel of countries than previous studies, we find strong confirmation that macroeconomic factors (real GDP growth and changes in the real effective exchange rate) affect the frequency of anti-dumping investigations. A reduction in real GDP growth or a depreciation of the real effective exchange rate leads to increased use of anti-dumping. Most previous studies of “traditional users” and “new users” of anti-dumping tend to associate real exchange rate appreciation with more anti-dumping activities. Because of the possible endogeneity of trade liberalization and anti-dumping actions, we caution against the inclusion of contemporaneous measures of trade openness in the explanatory variables. Even if this advice is ignored, no convincing evidence exists that greater trade openness or reductions in most favored nation (MFN) tariffs by developing countries increase the number of their anti-dumping filings. An important caveat to our results is the large number of zero anti-dumping actions in the data set, which may not have been adequately controlled for in the regressions. Classification-JEL: C23, F13, F53 Keywords: anti-dumping, real exchange rate, panel data, negative binomial regression Journal: Philippine Review of Economics Pages: 283-297 Volume: 46 Issue: 2 Year: 2009 Month: December File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/11/675 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:283-297