Balance-of-Payments Crises: Timing the Collapse of the Philippine Peso

Ruperto Majuca II


The focus of this paper is to undertake an empirical analysis of the Philippine balance of payments and to predict the date of the exchange rate collapse. Domestic credit expansion stimulated speculative attacks against the peso leading to the eventual depletion of the Central Bank’s stock of foreign reserves. This was so even though the initial level of reserves suspended the devaluation and artificially defended the peso. Moreover, a domestic credit growth that is faster than the world average given a domestic income growth that is slower than the world average affects the balance of payments negatively.

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