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© 2020 International Monetary Fund WP/21/256

IMF Working Paper

Institute for Capacity Developments

An Extended Quarterly Projection Model: Credit Cycle, Macrofinancial Linkages and

Macroprudential Measures: The Case of the Philippines 1

Prepared by Philippe Karam, Mikhail Pranovich and Jan Vlcek

Authorized for distribution by Paul Cashin (ICD)

October 2021

IMF Working Papers describe research in progress by the author(s) and are published to
elicit comments and to encourage debate. The views expressed in IMF Working Papers are
those of the author(s) and do not necessarily represent the views of the IMF, its Executive
Board, or IMF management.

Abstract
We extend a modern practical Quarterly Projection Model to study credit cycle dynamics and
risks, focusing on macrofinancial linkages and the role of macroprudential policy in achieving
economic and financial stability. We tailor the model to the Philippines and evaluate the model’s
properties along several dimensions. The model produces plausible dynamics and sensible
forecasts. This along with its simplicity makes it useful for policy analysis. In particular, it
should help policymakers understand the quantitative implications of responding to changes in
domestic financial conditions, along with other shocks, through the joint use of macroprudential
and monetary policies.

JEL Classification Numbers: E47, E52, C54

Keywords: Philippines, Forecasting and Policy Analysis, Quarterly Projection Model, Monetary
Policy, Macroprudential Policy, Credit Cycle, Leverage Ratio

Authors’ E-Mails: pkaram@imf.org; mpranovich@imf.org; janvlcekatcz@gmail.com

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We are grateful for the very helpful comments by the Bangko Sentral ng Pilipinas, MCM and Andy Berg.

©International Monetary Fund. Not for Redistribution

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Table of Contents

ABSTRACT ____________________________________________________________________2
I. INTRODUCTION _____________________________________________________________4
II. STYLIZED FACTS AND MODEL MOTIVATION _________________________________6
III. STRUCTURE AND FEATURES OF THE EXTENDED QPM ______________________10
A. Credit Cycle Block _____________________________________________________11
B. Macroprudential Policy Block ____________________________________________15
IV. MODEL PARAMETRIZATION AND MODEL PROPERTIES _____________________17
V. FORECAST EVALUATION ___________________________________________________24
VI. HISTORICAL INTERPRETATION OF THE DATA USING THE QPM _____________26
VII. CONCLUSION _____________________________________________________________32

©International Monetary Fund. Not for Redistribution