Interest Rate Movements and Inflation Risk in the Philippines

  • Alma Dela Cruz AMA University
  • David Dickinson University of Birmingham
Keywords: inflation risk, multivariate BEKK-Garch, CCAPM


This article examines the role of inflation risk in the determination of interest rate movements in the Philippines. The analysis proceeds by first estimating a measure of inflation risk that is analytically derived from the consumption-based capital asset pricing model (CCAPM). This inflation risk measure, the covariance of purchasing power growth and consumption growth, is estimated using a multivariate GARCH method on quarterly Philippine data from 1986 to 2005. The estimated inflation risk series is then used in a CCAPM-based interest rate model to help explain interest rate movements in the Philippines.

Author Biography

David Dickinson, University of Birmingham

Department of Economics