4 Informational Requirements of Inflation Targeting in the Philippines
- Carol Carson, Claudia Dziobek, and Charles Enoch
- Published Date:
- September 2002
ON January 24, 2000, the Monetary Board, the policymaking body of the Bangko Sentral ng Pilipinas (BSP), approved the shift to inflation targeting as the framework for monetary policy in the Philippines. This policy move is aimed at providing the BSP with a more focused and forward-looking approach in the pursuit of its primary mandate, which is to ensure price stability. Two intrinsic features of the approach—transparency and accountability in monetary policy—are expected to enhance the credibility of the BSP in helping to create a stable macroeconomic environment in which vital economic reforms to raise the growth potentials of the economy can continue.
The BSP shifted formally to inflation targeting in January 2002. Meanwhile, efforts of the monetary authorities have been focused on refining the operational details for the implementation of inflation targeting. Two of the operational challenges involve addressing the informational requirements of an inflation-targeting regime and adopting specific measures to enhance the transparency of monetary policy.
Informational Implications of Inflation Targeting
Inflation targeting is described as an information-intensive approach to monetary policy because of its emphasis on transparency and its use of a large set of economic variables to guide monetary policy setting.
In the past, monetary policy decisions in the Philippines relied for the most part on information on monetary aggregates, which served as operating targets under the monetary targeting framework employed by the BSP. However, financial liberalization has limited the effectiveness of monetary aggregates both as a lever of monetary policy and as an indicator of the monetary stance. For example, during the mid-1990s, headline inflation remained largely on track despite the fact that, because of surges in capital inflows, base money was above ceilings set under the IMF-supported economic program. By contrast, inflation rose to double-digit levels in 1995 following a shortage in the supply of rice, even as base money levels remained within program ceilings. In reaction to these developments, the BSP adopted in 1995 a modified targeting approach, which placed stronger emphasis on the price stability objective and less on rigid adherence to prespecified monetary aggregate ceilings (Guinigundo, 1999). This change also called for the use of a larger set of information variables in the conduct of monetary policy.
The formal shift to inflation targeting early this year therefore did not—in some respects—mark a significant change in the statistical demands placed upon the BSP, specifically the Department of Economic Research. The BSP had already been devoting considerable resources to monitoring and analyzing a wide array of information that has a bearing on the country’s inflation performance. Meanwhile, the effort to improve the dataset to ensure reliability, consistency, and timeliness has been an evolving activity.1
Though not significantly departing from past practices, inflation targeting has placed new demands on the data requirements for the conduct of monetary policy and on the analytical and forecasting capabilities of the BSP staff. It has also altered the way the BSP handles the information that it uses to determine the appropriate monetary policy settings. Thus it could be said that the new framework has had a “full circle” impact on the information process in the BSP. On the one hand, inflation targeting has required that the BSP systematically organize, refine, and assess relevant economic information insofar as it affects inflation. More important, it has required greater emphasis on obtaining and analyzing forward-looking indicators that would tell on future inflation. On the other hand, inflation targeting has encouraged the BSP to be more transparent in sharing information with the public on the conduct of monetary policy.
The Data Requirements of Inflation Targeting
The inflation-targeting framework requires a 360-degree perspective of the economy. Aside from indicators showing historical and current trends, the framework requires some indication—no matter how imperfect, for forecasting is an imperfect science—of the future state of the economy. Information about the past is important, not least because economic variables oftentimes have a large inertial component. Trend analysis is thus useful. In addition, because of the long lags in the monetary transmission process, inflation targeting must be forward looking, which highlights the need for a system of forecasting inflation with a reasonable degree of accuracy.
The specific informational requirements of monetary policy under inflation targeting depend on two factors: (1) the monetary policy reaction function of the BSP and (2) the monetary transmission process in the Philippines.
Under the inflation-targeting framework, monetary policy decisions are based on the central bank’s policy reaction function. In the Philippine context, this framework implies that the BSP sets its policy rates (specifically, its overnight borrowing and lending rates) based on the assessment of future inflation and output growth relative to the desired path of these variables, which form part of the country’s macroeconomic objectives. Monetary policy decisions are also influenced by the transmission mechanism of monetary policy, or the channels through which policy interest rates affect inflation and economic activity. These channels include the impact of the BSP’s policy levers on market interest rates, the exchange rate, asset prices, and expectations and confidence (Tuano-Amador and Paraso, 2002).
Operationally, inflation targeting entails a careful review and analysis of past and current trends in indicator variables along with the forecasts of inflation. The following section discusses these indicators briefly.
Headline inflation based on the consumer price index (CPI) is the target measure of inflation in the Philippines. The choice is guided by its wide public acceptance due, in part, to its being easily understood and its timeliness: it is released five business days after the reference month. It is also generated by an independent entity, the National Statistics Office (NSO).2 In making an assessment of future inflation, the BSP carefully evaluates past and current headline inflation and its components, as well as the factors—both demand- and supply-related—that have influenced the overall price level.
However, headline inflation could be affected by supply shocks or one-off transitory factors that are outside the control of monetary policy. Recognizing this, the BSP monitors several measures of core inflation to analyze the underlying pressures on price movements.
The BSP’s measures of core inflation include two exclusion-based methods: a CPI net of volatile items measure that excludes about 38 percent of the total basket, and a CPI net of unprocessed food and energy measure that excludes about 25 percent of the basket. The net of volatile items measure excludes several CPI components that exhibit relatively significant volatility, while the net of unprocessed food and energy measure eliminates a narrower set of commodities that are food- and oil-related. In addition to these exclusion-based measures, the BSP also uses two statistically derived measures: a 70 percent trimmed mean measure and a weighted median measure. These measures enable the BSP to examine the overall trend in consumer prices after removing the impact of temporary and exogenous shocks that are considered outside the control of monetary authorities.
Apart from past and current price trends, forecasts of inflation are another key element in the assessment of the inflation outlook. The use of inflation forecasts is an essential feature of inflation targeting because of the lags between monetary actions and their ultimate impact on inflation (Schaechter, Stone, and Zelmer, 2000). The forward-looking perspective of monetary policy under inflation targeting thus highlights the need for a reliable inflation forecasting model. At the same time, the choice and specification of the quantitative models have repercussions on the data requirements of inflation targeting.
The BSP’s Short-Term Inflation Forecasting Models
The BSP has devoted some resources to developing quantitative models to forecast monthly inflation. The two short-term inflation forecasting models of the BSP are a single equation model and a multiple equation model. The single equation model—estimated through ordinary least squares (OLS)—incorporates both demand-pull and cost-push factors and captures time dynamics in the month-to-month behavior of inflation. In particular, the model explains the movement of inflation as a function of the following:
- demand-pull factors: ratio of domestic liquidity (M4) to GDP and the national government budget balance;
- cost-push factors: weighted average price of oil products, average price of non-oil imports;
- combination of demand-pull and cost-push factors: legislated nominal minimum wage rate and the benchmark 91-day Treasury bill (T-bill) rate; and
- other factors: dummies for seasonality and the rice crisis in 1995.
Meanwhile, the multiple equation model combines vector autoregression (VAR) equations with structural equations as follows:
- an OLS equation that explains the CPI as a function of reserve money, domestic oil prices, non-oil import prices, agricultural output relative to trend, lagged inflation, and a dummy for the rice crisis in 1995;
- an OLS equation relating growth in reserve money to the policy instrument, specifically the BSP’s overnight borrowing rate;
- two VAR equations to explain the levels of market interest rates and stock market indices;3
- an identity equation for the exchange rate based on the purchasing power parity relationship; and
- several bridge equations linking exchange rate changes to changes in the prices of oil products and non-oil imports.
The multiple equation model thus provides a means for assessing the near-term impact of changes in the BSP’s policy instruments on inflation.
Both the single equation and multiple equation inflation forecasting models have helped the BSP keep track of price changes, and allowed the forecasting of inflation over a short-term horizon, that is, several months ahead. These forecasts form the basis of the BSP’s range of inflation forecasts for a given month. The models have also been useful in policy exercises, particularly in the assessment of the impact on inflation of changes in key macroeconomic variables such as interest rates and the national government fiscal position. Despite their fairly simple structure, both the single equation and multiple equation models have tracked inflation relatively well as measured by an average forecast error of 0.2 percentage point in 2000 (Bangko Sentral ng Pilipinas, 2000).
Development of the BSP’s Long-Term Macroeconomic Model
The BSP is also further improving its econometric modeling and forecasting capabilities through the development of a long-term annual macroeconomic model of the Philippine economy. The specification of the (structural) model is based on the BSP’s view of the transmission channels of monetary policy. The model is expected to serve as a quantitative tool of the BSP to forecast headline and core inflation in the next two years, with a probability distribution of future inflation outcomes, instead of only a single point expectation to account for the impact of various risk factors in the inflation outcome.
Together with the BSP’s current short-term inflation forecasting models, the long-term model is aimed at providing the necessary tools to strengthen the framework for policy discussions and decision making.4 The models have not only provided the BSP with a clear view of the transmission mechanism of monetary policy, but also enabled the BSP to conduct policy simulations that have helped guide monetary policy formulation and actions.
Private sector inflation forecasts offer useful additional information to policymakers about market expectations of future inflation. Estimates generated from the BSP’s models are thus complemented by market-based forecasts produced by the private sector—including equity research analysts, investment professionals, and credit rating agencies—and international financial institutions such as the IMF. The Inflation Report of the BSP contains a listing of the inflation expectations of the various sectors for the year ahead as well as the average of these forecasts.
Output and Economic Activity
The BSP’s assessment of the state of economic activity involves an examination of the trends in aggregate supply and demand indicators. Supply-side indicators include data on industrial production, including manufacturing output and capacity utilization, agriculture production, and data on the national income accounts. Aggregate demand indicators include data on bank lending, credit and liquidity growth, the government’s fiscal position, automotive vehicle sales, sales of electric power, and other indicators of consumer demand (for example, housing starts, sales of consumer durables, and beverage and liquor consumption). Labor and employment statistics are also monitored insofar as they provide information on demand-pull pressures and cost-push factors. Altogether, these indicators provide a view of the emerging scenario for output growth and help authorities assess the need and the scope for monetary tightening or easing. For example, the relative strength of economic activity is factored into decisions on whether or not to reduce policy interest rates in a benign inflation environment to provide broad support to the economy’s growth objectives.
Monetary and Financial Market Indicators
As indicated earlier, monetary policy decisions also depend on the policy transmission mechanism. Authorities consider the impact of monetary actions on monetary and financial variables that serve as the channels or links between the BSP’s policy levers and the ultimate target variable for monetary policy, which is inflation. In particular, monetary authorities attempt to gauge the extent to which policy actions have worked their way through the system, and whether or not further action is necessary, keeping in mind the long and variable lags in monetary policy.
Thus, the BSP examines developments in, among other things, monetary aggregates,5 credit activity, the exchange rate, the yield spectrum (short-term and long-term), and asset prices, as well as expectations and confidence. Authorities also look at trends in domestic interest rates, including the benchmark 91-day T-bill rate, bank lending rates, real interest rates, and interest rate differentials. A brief description of some of these variables follows:
- Exchange rate. Aside from the nominal exchange rate, the relative competitiveness of the Philippine peso is measured in terms of both the real effective exchange rate and the nominal effective exchange rate.
- Yield spectrum. The BSP regularly monitors the yield curve for government securities (with maturities ranging from 3 months to 20 years) that are traded in the secondary market as a gauge of market expectations for inflation over the medium- and long-term horizons.
- Yield differentials. Policymakers examine the differentials between domestic and foreign interest rates in order to gauge the potential impact of movements in policy interest rates on the foreign exchange market. The objective is to preserve broad stability in the currency market and minimize the destabilizing impact of the pass-through of exchange rate movements on consumer prices, but without countering any fundamental trend. In particular, the BSP tracks historical and current trends of the differentials between the benchmark 91-day T-bill rate—adjusted for taxes—and comparable interest rates in the United States (the 90-day U.S. LIBOR as well as the 90-day U.S. T-bill rate), and the BSP’s key policy interest rates and the U.S. target federal funds rate. The BSP also tracks the movement of the BSP policy rates and U.S. target federal funds rate differentials adjusted for the risk premium—as measured by the spread between the 10-year Philippine sovereign bonds over the 10-year U.S. Treasury note.
- Market interest rates. The behavior of market interest rates in response to changes in monetary policy settings is observed through the movements of the interest rate differentials between bank lending rates and the benchmark 91-day T-bill rate. In addition, the real lending rate of the Philippines vis-à-vis those of other Asian countries is also monitored.
- Asset prices. The monetary authorities also monitor and analyze the movements in assets markets, particularly the Philippines stock exchange index, and in the real estate sector. This information provides indications of underlying demand pressures (through the wealth effect) or of a potential slack in the economy, which could have important implications for the asset quality of the banking system and thus the effectiveness of the banking system as the conduit for monetary policy. In the case of the Philippines, the BSP tracks data on real property prices, changes in the volume and value of construction permits, and movements in the Philippine stock market index as well as the volume and value turnover of shares traded.
- Expectations. The perception of the public regarding the present level and prospects of production and economic activity has a significant impact on future consumption and domestic demand, which, in turn, affect future price movements. In this regard, the BSP conducts a quarterly business expectations survey, which aims to determine the current level and near-term prospects of production and economic activity as measured by the business conditions and outlook of respondent firms. The survey also provides a measure of the private corporate sector’s outlook on selected economic and financial indicators such as inflation, the exchange rate, and domestic interest rates.6 The survey covers 12 major industry sectors, drawn from the top 3,000 corporations (based on revenue) in Metro Manila.7
Other Determinants of the BSP’s Monetary Policy Actions
Policy decisions are also guided by developments in the financial sector and the external environment. The BSP monitors developments in the financial sector consistent with its responsibility for safeguarding the health and soundness of the banking and financial system. One specific concern is how changes in interest rates would affect the asset quality of banks. The health of the banking sector and the financial system and the role of banks as efficient conduits for monetary policy have important implications for market confidence and expectations and thus for the outlook for inflation.
Managing a small, open economy such as the Philippines means that domestic economic policies cannot be indifferent to developments in the rest of the world. For this reason, in determining the timing and magnitude of changes in the monetary policy settings, the BSP also considers developments in and the prospects of the global economy. These developments include those affecting major economies such as Japan, the United States, and the euro area countries that the Philippine economy has extensive linkages with; concerns that involve the Asian region and emerging economies in general; and the price movements of key commodities, specifically oil.8
Some Issues on the Statistical Requirements of Inflation Targeting
Work is proceeding on expanding and refining the information set that is needed for inflation targeting. A key issue involves the generation of a core inflation series by the National Statistics Office. Ongoing interagency efforts enable the NSO to generate and publish data on core inflation on a regular basis. The construction of an official definition of core inflation would mostly likely be based on the exclusion method (that is, less unprocessed food and energy). The publication of official data on core inflation will provide useful additional information for analyzing the underlying trends in prices.9
The compilation and measurement of both the headline CPI and core inflation by an independent agency such as the NSO and the oversight of the National Statistical Coordination Board are crucial in preserving the integrity of data and enhancing the credibility of the inflation-targeting framework.
Monetary policy setting will also be better informed with the monitoring of other indicators, including a market-based national wage index (instead of only the legislated minimum wage) and data on retail sales.
A related issue facing many emerging economies like the Philippines concerns the availability and quality of data. In some cases, time series on important economic variables are fragmented, not comparable across time, or of recent origin such that analysis can be difficult. There are also concerns regarding the lags in the dissemination of the data and in the extent of data revisions. These concerns, however, are expected to be addressed as part of the gradual maturation of the statistical framework of inflation targeting.
The Philippines, like most developing countries, is also in a continuing process of structural reform. Policy changes often introduce significant changes in the different sectors of the economy, which will be reflected in the economic data. The presence of structural breaks in economic statistics makes econometric modeling and analysis relatively more difficult in emerging economies than in more mature economies that have already undergone major structural adjustments.
All these issues highlight the need to develop the technical capability of the BSP research staff in econometric modeling and forecasting, as well as the need to enhance their analytical capabilities. Regarding the latter, there has also been a reorientation in analytical content, with the focus of analysis shifting to the medium-term perspective; research staff now spend a greater amount of time forecasting future inflation and assessing market expectations for future inflation rather than concentrating on current developments or just the near-term outlook. Continuing technical training and development of the research staff are thus necessary in order to hone their expertise to provide top management and the Monetary Board with informed recommendations.
Monetary policy decision making, however, does not rely exclusively on official statistics and indicators. The BSP does not mechanically extrapolate the results of the various econometric models to develop its inflation forecasts.10 As in most countries, policymaking involves a fair amount of judgment. Thus, the Monetary Board of the BSP complements the use of statistical information and quantitative tools with qualitative but seasoned and considered judgment as well as extra-model information in setting the stance of monetary policy and calibrating monetary policy settings.
The BSP’s Transparency Practices in Monetary Policy
Like many central banks, the BSP monitors, compiles, and reports a wide range of monetary and financial statistics. Initiatives on this front include the posting of the schedule of press releases and reports (advance releases calendar) on the BSP’s website, as well as compliance with international standards for data dissemination prescribed by the IMF’s Special Data Dissemination Standard (SDDS). The subscription of the Philippines to the SDDS has improved further the timeliness and quality of data dissemination. In addition, like many inflation-targeting countries, the BSP also has made an effort to improve the transparency of monetary policy. Disclosure standards and reporting mechanisms of the BSP under the inflation-targeting framework consist of the following:
- Announcement by the BSP governor of the inflation target set by the government in coordination with the BSP. This assumes that decisions had also been made on the specific price index to target; the range, if any, around the target level; the escape clauses; the policy horizon over which the target must be achieved; and the regularity of the review of monetary policy settings. Such decisions are also communicated to the public.
- Publication of a quarterly inflation report. The BSP’s quarterly inflation report contains a review of economic and financial developments (domestic and international) and the impact of these developments on domestic inflation, an assessment of monetary conditions, an analysis of the demand and supply conditions affecting future inflation, an explanation of the motivations for the BSP’s monetary policy actions, and a discussion of the inflation outlook over the policy horizon. The intention is to communicate clearly to the public the government’s inflation target as well as the BSP’s policy intentions and actions and the reasons behind them.
- Publication of the minutes of the discussion of the Monetary Board on monetary policy issues, with a lag of six weeks, to provide the public with an account of the grounds for monetary policy decisions. The first publication of the highlights of the minutes was on February 28, 2002, through the BSP website and the press.
- Issuance by the BSP governor of an open letter to the president in case of a deviation of actual inflation from the inflation target, explaining the reasons behind such deviation along with the measures to be adopted to bring inflation back to target.
- Public appearances by senior BSP officials to explain monetary policy decisions.
- Publication of the full balance of payments report instead of only the issuance of a press release.
These reports serve as vehicles for communicating to the public the objective of monetary policy (as embodied in the inflation target), the progress in achieving the target, and the process by which the target is attained and policy decisions are reached. Reducing the uncertainty about the BSP’s interpretation of relevant data is expected to simplify the monitoring by outside agents.
The motivation behind these transparency practices is the belief that the disclosure of the central bank’s assessment of the prevailing and looming inflationary pressures, particularly in terms of an inflation forecast—even if imprecise—increases the effectiveness of monetary policy, thus enhancing macroeconomic performance. Disclosure makes policy more predictable, reducing unnecessary uncertainties in financial markets about the BSP’s intentions, and thus improving decision making by market participants and enabling more informed and more efficient pricing and investment decisions (Tarkka and Mayes, 1999). It also facilitates the coordination of monetary and fiscal policies. Moreover, transparency makes the BSP’s reputation and credibility more sensitive to its actions, thus reducing the incentive to pursue inflationary policies. Furthermore, it serves to insulate monetary policy from manipulation for political reasons. In a sense, therefore, enhanced transparency imposes discipline and a consistent strategy on the process by which the BSP formulates monetary policy.
Chortareas, Stasavage, and Sterne (2001) sought to examine whether central bank transparency is associated with lower inflation. The authors focused on one particular form of transparency, namely the publication of inflation forecasts and forward-looking analysis. Their findings suggest that transparency in publishing forecasts is associated with lower inflation because publication allows the dissemination of information relevant to the central bank’s view of the world, thus making central bank credibility more sensitive to policy actions. They noted that their finding is robust regardless of whether the domestic nominal anchor is based on an inflation or a money target.11
The benefits of transparency are not unconditional, however. There are also costs in terms of reduced flexibility. For instance, a particular shock may require countercyclical monetary policy moves. Increased transparency, however, can delimit the BSP’s capacity to stabilize the economy. The root cause of high inflation may be a looming banking or exchange rate crisis or even an unmanageable fiscal position. Under these circumstances, the central bank’s highlighting such issues would not be entirely without unwanted consequences.
Forecasts, being based on a series of assumptions, are of course not unconditional. Hence, the inflation forecast will need to be updated regularly. In the case of the Philippines, the inflation forecasts are reviewed monthly. These reviews serve as the basis for the quarterly reassessment—under the Development Budget Coordination Committee (DBCC) process—of the inflation target, along with the other macroeconomic variables, based on the latest economic data; indicators of market sentiments; view of the future, including possible shocks; model results; and judgmental analysis.12
In considering the impact of possible shocks, the BSP plans to eventually publish not only the central target range but also a probability distribution for the inflation outlook in the form of a fan chart, based on the weights attributed to certain factors or events that influence future inflation, the assessment of the risks, and the likely margins of error around the central forecasts.
The BSP’s shift to inflation targeting in January 2002 has underscored the central role of information in the conduct of monetary policy. As a forward-looking and information-intensive approach to monetary policy, inflation targeting has required the use of a wider set of information variables on the economy than had been previously used. Under inflation targeting, monetary authorities in the Philippines need to have reliable and timely economic indicators and a good system for economic forecasting, particularly inflation. A well-organized system for economic statistics—based on reliable, timely, and comprehensive information—enables informed decisions and the efficient functioning of markets. It is also an essential element in strengthening the monetary policy decision-making process by providing a focused and consistent framework for setting the monetary policy stance.
The availability and quality of information—particularly forward-looking information—can still be improved, however. The BSP will thus continue to support efforts to strengthen the process of compilation, reporting, and analysis of information that have a bearing on the inflation performance and the inflation outlook.
At the same time, good statistical information based on a variety of indicators needs to be supplemented with good economic analysis and good judgment—based on experience as well as contacts with the various sectors of the economy—in order to interpret correctly and meaningfully the ever-growing volume of information that tells on the likely path that future inflation will take. Thus, a country’s inflation forecasts are guided by a combination of indicator variables, quantitative economic models, and qualitative judgment, each embodying important information that will be useful in arriving at the inflation outlook and the appropriate stance for monetary policy.
Inflation targeting also has important implications for the transparency of monetary policy. In the Philippines, the adoption of the inflation-targeting framework has committed the BSP to enhancing its transparency practices through the publication of additional reports that are expected to guide the expectations of economic agents on the state of the economy, particularly the inflation outlook.
The authors would like to acknowledge the assistance of Ma. Digna G. Paraso of the Department of Economic Research, Bangko Sentral ng Pilipinas (BSP).
The IMF through its technical assistance programs has played a key role in many of these efforts, especially insofar as improvements in statistical methodologies and in the dissemination of information are concerned.
CPI data are released through the monthly “Consumer Price Index” report and an accompanying press release at 9:00 a.m. on the fifth business day after the reference month. The report and the press release are posted on the NSO website and copies are faxed contemporaneously to concerned government agencies, including the BSP.
Time series models have few, if any, economic structures, but they provide good short-term forecasts.
The development of the inflation forecasting models of the BSP has been undertaken through consultancy agreements with Dr. Roberto Mariano of the University of Pennsylvania.
Monetary aggregates are used not as intermediate targets but as explanatory variables or indicators of the inflation outlook.
Deacon and Derry (1994) assert that a comparison of the market expectations for inflation and the government’s inflation target serves as a gauge of the market’s perception of the credibility of monetary policy.
Deacon and Derry (1994) contend, however, that surveys are not entirely dependable. For one, survey respondents have no incentive to answer accurately, so their responses may not be consistent with their normal market behavior. For another, surveys are typically concerned mainly with the short-run outlook.
This could also help in the possible shift to the use of core inflation as an operating target for monetary policy should such a move be contemplated (Nessén and Söder-strom, 2000).
The BSP coordinates with the government (particularly the Development Budget Coordinating Committee) in formulating the inflation target. The BSP uses its inflation forecast as a basis for the discussions.
There may be some endogeneity between low inflation and transparency, thus biasing the results of the study—that is, the attainment of low inflation causes a central bank to be more transparent, and vice versa. The authors noted that, while the statistical tests cannot completely reject such a possibility, they consider it unlikely to determine the results. They added that there are few if any examples of either (1) a framework in which policymakers have reduced transparency in response to an increase in inflation, or (2) a transparent framework in which inflation has markedly increased. On related issues, see Palmqvist (1999).
The DBCC is charged mainly with overseeing the overall budgetary thrusts of the government. In the process, the DBCC sets the targets for macroeconomic variables, particularly GNP and GDP growth and inflation, which are important inputs in the formulation of the revenue, expenditure, and financing programs of the government.