Maragat Valerio Thesis PDF

INFLUENCE OF INFLATION TARGETING ON GROWTH AND EMPLOYMENT IN
AGRICULTURAL SECTOR IN THE PHILIPPINES
Undergraduate Thesis
Submitted to the Faculty of the
College of Economics, Management and Development Studies
Cavite State University
Indang, Cavite
In partial fulfilment
Of the requirements for the degree
Bachelor of Science in Economics
Jeanivhic P. Maragat
Ericka P. Valerio
April 2019
BIOGRAPHICAL DATA
Ericka P. Valerio was born on the 24th of March 1999 in San Carlos City,
Pangasinan. She is the eldest of Mr. Frederic T. Valerio and Mrs. Dorina P. Valerio. She
has one brother whose name is Frederic P.Valerio Jr.
She finished primary education in 2011 at Langkaan Elementary School,
Langkaan 1 Dasmariñas Cavite. She took up her secondary education at St. Joseph
Academy of Dasmariñas Inc. and graduated in 2015.
In June of 2016, she enrolled at Cavite State University, Indang, Cavite and
pursued Bachelor of Science in Economics major in Business Economics. She obtained
the degree in June 2019.

BIOGRAPHICAL DATA
Jeanivhic P. Maragat was born on March 26, 1999 in San Jacinto Victoria Tarlac.
She is the youngest child of Mr. Victor Maragat and Mrs. Jeanette Maragat. Currently
she is residing at 172 Langkaan I, Dasmariñas City, Cavite.
She finished her elementary education at Langkaan Elementary School in the
year 2000 and her secondary education at St. Joseph Academy of Dasmariñas Inc. in
the year 2015. She is pursuing her College in taking up Bachelor of Science in
Economics major in Business Economics at Cavite State University.

ACKNOWLEDGEMENT
The authors would like to express their gratitude first of all to Almighty GOD, for
the streghth and blessings that he provides in order yo finish this study.
Also, the authors would like to show their appreciation to the following persons,
for their countless support, encouragement and contribution in orer to complete the
study:
Ms. Jenny Beb F. Ebo, thesis adviser, for her guidance, support, understanding
and insightful comments, and for all the untiring efforts exerted during the proposal until
the last portion of the study;
Dr. Gilchor P. Cubillo, technical critic, for all the valuable suggestions and effort
in checking the technical aspect of the study;
Mr. Marlon A. Mojica, thesis coordinator and department chair, for her advice,
guidance and insightful comments to improve the study;
Dr. Florindo Ilagan, dean of CEMDS, for his pieces of advice, comments and
encouragement which led to the completion of the study;
The teachers and professors of the university, for the cooperation of sharing their
knowledge and information;
All 4th year economics students, especially Business Economics, for sharing all
the happy and unforgettable memories, hardship moments and the countless thought
they shared;
Their dearest friends to lean on, Belmira Tuazon, Martin Barbarona, Irah
Cabrera, Julienne Escopete, Lhymhel Inguanzo, Elijah Herero, Mathews Ed Ramos,

Angelo Ampado and Jem for the unforgettable ups and downs moments they shared
and for the love and support that they give all the time;
Their beloved families, Jeannette Maragat, Dorina Valerio, Victor Maragat and
Frederic Valerio, for their undying love and support, for providing all their needs
financially and morally, for their patience and understanding during their tiring days, for
their never fading advices and for being there for us no matter what.
Their relatives, for the trust and moral support;
Lastly, to their ALMA MATER, Cavite State University, for making their college
days colorful and wonderful.
To all of them, this piece of work is wholeheartedly dedicated.
THE AUTHORS
ABSTRACT
MARAGAT, JEANIVHIC P., and VALERIO, ERICKA P., “Influence of Inflation

targeting on selected agricultural commodities prices in the Philippines”
Undergraduate Thesis. Bachelor of Science in Economics major in Business Economics,
College of Economics, Management and Development Studies. Cavite State University,
Don Severino delas Alas Campus, Indang, Cavite. April 2019. Adviser: Ms. Jenny Beb F.
Ebo.
Both policymakers and economists increasingly accept that main medium-to
long-run goal of monetary policy is the pursuit of price stability, defined as maintaining a
low and stable rate of inflation. To accomplish the objective of price stability, money
related approach in numerous nations was for quite a while directed by depending on
middle of the road targets, for example, financial totals or exchange rates.This new way
to deal with the issue of controlling inflation through financial arrangement is known as
inflation targeting. It basically makes inflation (as opposed to yield or joblessness) the
essential objective of financial strategy.
This study aimed to seek the influence of inflation targeting on growth and
employment in agricultural sector in the Philippines; to describe the pattern of inflation
rate, GDP and employment in agricultural sector in the Philippines, to determine if there
is any significant difference between actual and target inflation rate, and to determine the
significant influence of inflation on growth and employment in agricultural sector.
The data were gathered from the database of Philippine Statistics Authority
(PSA), BangkoSentralngPilipinas (BSP) and Department of Agriculture (DAR). Since the
approach of the research is descriptive- corelational using time series, Simple Linear
Regression was used.
Statistical result showed particularly, t test that the actual and target inflation
using minimum value is significant with t-value of -3.10 at one percent level of
significance and lowest inflation rate experienced by the country is 1.26 percent below
the target inflation while in maximum value the actual and target inflation using maximum
value is significant with t-value of 0.06 at one percent level of significance. The actual
and target inflation rate using maximum value is significant at 0.04 percent which
experience by the country.
However, in testing if inflation targeting can influence the employment and GDP
in agricultural sector, the result of regression showed that there is no influence in
employment and GDP. Furthermore, the result in Durbin Watson test shows that the
inflation targeting, employment and GDP had no serial correlation. Models were not
found to be mis-specified as independent and dependent variables passed the test for
specification error using Ramsey RESET Test.

TABLE OF CONTENTS
Page
BIOGRAPHICAL DATA........................................................................................ iii
ACKNOWLEDGEMENT........................................................................................ v
ABSTRACT............................................................................................................ vii
LIST OF TABLES.................................................................................................. ix
LIST OF FIGURES................................................................................................. x
LIST OF APPENDIX TABLES............................................................................... xi
LIST OF APPENDIX FIGURES............................................................................. xii
LIST OF APPENDICES......................................................................................... xiii
INTRODUCTION................................................................................................... 1
Statement of the Problem............................................................................ 4
Objective of the Study.................................................................................. 4
Theoretical Framework of the Study............................................................ 5
Conceptual Framework of the Study............................................................ 6
Significance of the Study.............................................................................. 7
Scope and Limitation of the Study............................................................... 7
Definition of Terms....................................................................................... 8
REVIEW OF RELATED LITERATURE................................................................. 9
METHODOLOGY.................................................................................................. 21
Research Design.......................................................................................... 21
Sources of Data........................................................................................... 21
Null Hypothesis............................................................................................ 21
Statistical Treatment of Data........................................................................ 22

Empirical Model............................................................................................ 22
Research Model........................................................................................... 23
RESULTS AND DISCUSSION..............................................................................
Pattern of Inflation rate, GDP and employment in agricultural

Sector in the Philippines for 2002 to 2017.........................................
Significant difference between actual and target inflation rate..................... 32
Significant influence of inflation targeting on growth and

Employment in agricultural sector......................................................
SUMMARY, CONSLUSION AND RECOMMENDATION..................................... 83
Summary...................................................................................................... 83
Conclusion.................................................................................................... 84
Recommendation......................................................................................... 84
REFERENCES....................................................................................................... 85
APPENDICES........................................................................................................ 87
LIST OF TABLES
Table Page
Philippines actual and target inflation rate in minimum

1
and maximum value........................................................................ 33
T-test result comparing actual and target inflation rate

2
using minimum value...................................................................... 34

3
using maximum value..................................................................... 35
The result of Augmnted Dickey Fuller test of all variables

4
at level form.................................................................................... 37
The result of Augmented Dickey Fuller test of all variables

5
at first difference............................................................................. 38
The result of Augmented Dickey Fuller test of all variables

6
at second difference....................................................................... 40
The regression result using ordinary least square regression

7
on Actual Maximum Inflation........................................................... 41
The regression result using ordinary least square regression

8
on Actual Minimum Inflation............................................................ 41
9 Durbin Watson Statistics result of Employment and GDP........................ 42
10 Ramsey Reset Result of Actual Maximum Inflation.................................. 43
11 Ramsey Reset Result of Actual Minimum Inflation................................... 43

LIST OF FIGURES
Figure Page
Schematic diagram illustrating the influence of inflation

1 targeting on growth and employment in agricultural
sector in the Philippines.................................................................. 5
2 Philippine Inflation Rate, 2002-2017......................................................... 30
3 Philippine Employment and Gross Domestic Product.............................. 33
The graph of the independent and dependent variables at

4
level form........................................................................................ 36

5
first difference................................................................................. 37

6
second difference........................................................................... 39
LIST OF APPENDIX TABLES
Appendix
Table Page
Actual and Target Yearly Inflation Rate at Minimum

1
and Maximum in the Philippines............................................... 6
Total number of employed persons in agriculture

2
by region, Philippines, 2006-2017 (in „000 persons)................. 27
3 Yearly Employment Rate in Agricultural Sector in the Philippines 28
Yearly Economic Growth (GDP) Rate in Agricultural

4
Sector in the Philippines........................................................... 30
T-test result comparing actual and target inflation

5
rate using minimum value......................................................... 32

6
using maximum value............................................................... 35
LIST OF APPENDIX FIGURES
Appendix
Figure Page
Unit Root Result of all Independent and Dependent

1
Variables at Level Form............................................................ 6

2
Variables at First Difference..................................................... 27

3
Variables at Second Difference................................................ 28
4 Regression Result of all Dependent Variables................................... 30
Durbin Watson Result of all Independent and

5
Dependent Variables................................................................ 32
Ramsey Reset Result of all Independent and Dependent

6
Variables................................................................................... 35
LIST OF APPENDICES
Figure Page
Schematic diagram illustrating the influence of inflation

1 targeting on growth and employment in agricultural
sector in the Philippines.................................................................. 5
2 Philippine Inflation Rate, 2002-2017......................................................... 30
3 Philippine Employment and Gross Domestic Product.............................. 33

4
level form........................................................................................ 36

5
first difference................................................................................. 37

6
second difference........................................................................... 39
INFLUENCE OF INFLATION TARGETING ON GROWTH AND EMPLOYMENT IN
AGRICULTURAL SECTOR IN THE PHILIPPINES
Jeanivhic P. Maragat
Ericka P. Valerio
An undergraduate thesis manuscript submitted to the faculty of the Department of

Economics, College of Economics, Management and Development Studies, Cavite State
University, Indang, Cavite in partial fulfilment of the requirements for the degree of
Bachelor of Science in Economics major in Business Economics with Contribution
No._________________. Prepared under the supervision of Prof. Jenny Beb F. Ebo.
INTRODUCTION
Both policymakers and economists increasingly accept that main medium-to long-
run goal of monetary policy is the pursuit of price stability, defined as maintaining a low
and stable rate of inflation. A high and variable inflation rate is socially and economically
costly. These costs include price distortions, lower savings and investment, hedging, and
capital flight (Agenor, 2001). The attempt to achieve these conflicting goals tends to
generate an inflationary bias in the conduct of monetary policy to achieve higher output
and employment.
To accomplish the objective of price stability, money related approach in
numerous nations was directed to target financial totals or exchange rates. In 1990s,
some countries started to control inflation through financial arrangement known as
“inflation targeting”. This strategy empowered national bank to foresee the future
conduct of costs. (Agenor, 2001) The expansion target gives straightforwardness in the
execution of money related arrangement that empowers budgetary organizations in the
market to predict the future with less vulnerability and carry on appropriately. The
inflation target provides transparency in the implementation of monetary policy that

enables financial institutions in the market to foresee the future with less uncertainty and
behave accordingly.
In the Philippines, inflation target-setting is based on the existing framework for
coordination between economic agencies. The national government, through the
Development Budget Coordinating Committee (DBCC), sets the inflation target based on
the consumer price index (CPI) two years ahead in consultation with the Bangko Sentral
ng Pilipinas (BSP). The BSP has full powers over and responsibility for the
announcement of the inflation target and the determination of appropriate monetary
policy to achieve the target. (Guiniguindo, 2005)
Statement of the Problem
Inflation targeting is a monetary policy where the Bangko Sentral ng Pilipinas and
the government set a specific inflation rate as its goal and growth is the one who affects
it. Hence the study aimed to determine the influence of inflation targeting on growth and
employment in agricultural sector in the Philippines.
Specifically, it sought to answer the following questions:
1. What is the pattern of inflation rate, GDP and employment in agricultural
sector in the Philippines for 2002 to 2017?
2. Is there a significant difference between actual and target inflation rate?
3. What is the significant influence of inflation targeting on growth and
employment in agricultural sector?
Objectives of the Study

In general, the study aimed to determine the influence of inflation targeting on
growth and employment in agricultural sector in the Philippines.
Specifically, it aimed to:

1. Describe the pattern of inflation rate, GDP and employment in agricultural
sector in the Philippines for 2002 to 2017.
2. Determine if there is a significant difference between actual and target
inflation rate.
3. Determine the significant influence of inflation on growth and employment in
agricultural sector.
Theoretical Framework
John Maynard Keynes and his followers emphasized that increased in aggregate
demand as the source of demand-pull inflation. The aggregate demand comprises
consumption, investment and government expenditure. According to Keynes, demand-
pull inflation theory is the policy that causes decrease in each component of total
demand is effective in reduction of pressure demand and inflation. One of the reductions
in government expenditures is tax increase and to control volume of money alone or
together, can be effective in reducing effective demand and inflation control. In difficult
condition, hyperinflation during war that control volume of money or decrease in general
expenditure may not be practical increase in tax can get along with direct action for
control on demand.
Cost-push inflation is caused by wage increases enforced by unions and profit
increases by employers. The basic cause of Cost-push Inflation is the rise in money
wages more rapidly than the productivity of labour. The labour unions press employers
to grant wage increases considerably, thereby raising the cost of production of
commodities. Employers in turn, raise the prices of their products. Higher wages enable
workers to buy as much as before, in spite of higher prices. On the other hand, the
increase in prices induces unions to demand still higher wages. (Totonchi, 2011)
These theories would support the study and simple linear regression analysis
would served as the instrument in measuring the influence of inflation targeting on
Conceptual Framework
The conceptual framework of the study is shown in Figure 1. The independent
variable is the target and actual inflation rate while the dependent variable is the GDP
and employment.
Figure 1 shows the perceived influence of inflation targeting measured in terms
of actual and target inflation on economic growth. Economic growth was measured in
terms of GDP and employment.
Actual Inflation Target Inflation

(Inflation Rate) (Inflation Rate)
Economic Growth
(GDP, Employment)
Figure 1. Schematic diagram illustrating the influence of inflation targeting on growth

and employment in agricultural sector in the Philippines
Significance of the Study
The result of the study would provide information and insights to various sectors:
First, this study would be helpful for instructors to provide factual information about
inflation targeting and it would also serve as a sample in discussing how to conduct a
research study or thesis.
Second, the result of this study would extend the knowledge of the researchers
and students that would provide information and ideas about inflation targeting in the
Philippines. Furthermore, they would also identify the influence of inflation targeting on
Third, this study would be helpful for future researchers who would be interested
in doing advance research on same topic that would serve as a basis of reference for
conducting a research study.
This study would also be helpful to the citizen of the Philippines to understand
how and why the central bank set target inflation rate and its impact in their decision
making.
Scope and Limitation of the Study
The study focused on the influence of inflation targeting on growth and
employment in agricultural sector in the Philippines. The study was based in Bangko
Sentral ng Pilipinas in determining the target inflation rate in the Philippines, consumer
price index (CPI) is the main basis in determining the target inflation rate. The study
would limit to 16 years (192 months) observation in answering the influence of inflation
targeting on growth and employment in agricultural sector in the Philippines and the data
would be analyzed by simple linear regression analysis.
Definition of Terms
Consumer Price Index (CPI) represents the average price for a given period of
a standard basket of goods and services consumed by a typical Filipino family.

Cost-Push Inflation refers to the macroeconomic theories that support the
inflation targeting on agricultural commodities prices in the Philippines.
Demand-Pull Inflation refers to the macroeconomic theories that support the
inflation targeting on agricultural commodities prices in the Philippines.
Economic Growth refers to the increase in the inflation-adjusted market value of
the goods and services produced by an economy over time.
Employment refers to people who perform a service or operations involved in
the production of food, fibber or other agricultural products.
Gross Domestic Product (GDP) refers to the broad measurement of a nation‟s
overall economic activity. It is the monetary value of all the finished goods and services
produced within a country‟s borders in a specific time period.
Inflation Rate refers to the rate of change in the weighted average prices of
goods and services typically purchase by consumer.
Inflation Target refers to the average year-on-year change in the consumer
price index (CPI) over the calendar year. (BSP)

REVIEW OF RELATED LITERATURE
This chapter presents different literature and related studies. These will
contribute and help the researchers on the direction of the study.
Inflation Rate
Inflation is a well-established fact of life in virtually every economy throughout the
world. Whether slow, moderate, or rapid, an ongoing rise in the average level of prices
has been a prominent feature on the economic landscape of most nations for at least
past 50 years. The continued rise in the price level is the backdrop against which all our
decisions are made. As a result, capital market transactions that involve agreements
extending years or even decades into an unknown future become especially vulnerable
to unexpected changes in the inflation rate.
Most of us also come to think of inflation as a process that lowers our standard of
living every bit as much as unemployment. However, a closer look at the actual costs of
inflation reveals it to be much less damaging than commonly thought. Because higher
prices also become higher money incomes, it is wrong to think that 5 percent inflation
has somehow stolen 5 percent of our nation‟s purchasing power or output. In fact,
excluding huge triple-digit inflations that lead to demonetisation and other inefficiencies,
the main costs of inflation itself come from frequent price changes and the fact that
inflation erodes the real value of money holdings leading us to hold smaller money
balances and thereby creates inefficiencies. Although these costs can‟t be neglected,
they are small in comparison to popular views of cost of inflation. A greater cost is
associated with the variability of inflation as distinct from its level by adding uncertainty
and risk to so many of our decisions, it encourages choices that use scarce resources
and that would not be needed in a world with a morale stable, predictable inflation rate.
Foreign Literature
As is well known, inflation targeting was introduced in New Zealand in 1990. As
Murray (2006) points out, when inflation targeting was implemented in New Zealand, it
was viewed as a special case, because New Zealand was a small open economy that
had just announced a number of audacious reforms. The Policy Targets Agreement was
a creative and reasonable extension of this first wave of reforms. It was designed to lend
more discipline and accountability to the conduct of monetary policy. The Governor
would be given explicit policy goals, and his performance would be judged accordingly.
These actions were not necessarily viewed with distress, since New Zealand was an
emerging economy, small enough not to cause any problems for any other country.
Receptiveness and straightforwardness in the lead of financial arrangement are
vital approaches to enhance validity in an expansion focusing on framework by making
the national bank freely responsible for its choice, they raise the motivating force to
accomplish the swelling target and in this manner improve people in general's trust in the
capacity of the fiscal experts to do as such. They may likewise prompt enhanced basic
leadership with respect to the national banks by presenting to open scrutiny the
procedures through which fiscal strategy choices are taken. The way that fiscal
arrangement experts must declare approach changes and clarify the explanation behind
these progressions to the general population may build the adequacy of money related
strategy under swelling focusing on. At last, straightforwardness lessens vulnerability
about the national bank's inclinations, which may prompt a lower expected rate of
swelling and a lower affinity to react to supply stuns.
Adaptation of Inflation Targeting

In the aftermath of the money related emergency that influenced Mexico's
economy all through 1995, one of the objectives of the financial program was to balance
out the economy in a deliberate manner and as fast as could reasonably be expected,
with the end goal to ensure that a monetary strength circumstance would not emerge. As
argued by Ramos-Francia and Torres García (2005), in doing so, the three challenges
posed by the crisis were met: (i) the government fulfilled all of its obligations; (ii) the
economy adjusted swiftly to a new macroeconomic environment (the current account
deficit fell from 7.1 percent of GDP in 1994 to 0.61 percent in 1996 and 1.8 percent in
1997); and (iii) a meltdown of the financial system was avoided.
As Ramos-Francia and Torres García (2005) point out, the challenge faced by
policymakers at Banco de México was to establish monetary policy as the nominal
anchor of the economy at a time when there was widespread uncertainty about the
bank‟s commitment and its ability to achieve both financial and price stability. The
strategy consisted mainly of three elements: (i) improve the transparency of the
implementation of monetary policy; (ii) maintain a clear restrictive bias in order to induce
a sustainable reduction in inflation; and (iii) respond appropriately to inflationary shocks.
Several main points are of note in the process that led to the adoption of an
inflation targeting regime in Mexico. In this process, inflation has decreased from close
to 52 percent in 1995 to levels close to 3 percent over recent years, under a flexible
exchange rate regime.
As a result of the progress to an undeniable expansion focusing on structure,
both the goal and usage of money related arrangement have turned out to be more
straightforward and open to open examination. This procedure has additionally
enhanced the responsibility of Banco de México and secured swelling desires.
Effects of Inflation on Output

Cost-push and demand-pull factors are important in the determination of the
price level. The price of imported goods has the highest elasticity, followed by wages
and money supply (Lira, 1996). The theory of cost-push inflation explains rising prices in
terms of factors that raise per-unit production cost at each level of spending. A per unit
production cost is the average cost of particular level of output. Rising per-unit
production cost squeeze profits and reduce amounts of output firms are willing to supply
at the existing price level. The major source of cost-push inflation has been so-called
supply shocks. Specifically, abrupt increases in the cost of raw materials or energy
inputs have on occasion driven up per-unit productions cost and thus product prices.
An interesting study is that of Lim (1987) which is based on the possibility that
the working capital cost-push effect may offset the monetarist effect so that inflation may
even rise after a reduction in money supply. The increase in inflation is caused by the
rise in the interest rate which raises the cost of borrowing for working capital. The
empirical results indicate a positive relation between relevant interest rates and inflation.
Lim then concludes that "the simple quantity theory of money is oversimplified and hides
the full impact of monetarist prescriptions to inflation and that it neglects the transmission
mechanism of credit made monetary cutback which may entail a drastic fall in income,
investments, personal consumption expenditure and most likely, government spending."
Usually, changes in the price level are caused by an excess of total spending
beyond the economy‟s capacity to produce. When resources are already fully employed,
the business sector cannot respond to this excess demand by expanding output. So the
excess demand bids up the prices of the limited real output, causing demand-pull
inflation. Demand-pull inflation involves inflation rising as real Gross Domestic Product
rises and unemployment falls, as the economy moves along the Phillips curve. Demand-
pull inflation is commonly described as “too much money chasing too few goods”. More
accurately, it should be described as involving “too much money spent chasing too few
goods”, since only money that is spent on goods and services can cause inflation. This
is not expected to happen unless the economy is already at a full employment level.
Demand-pull inflation is mostly associated with Keynesian economics.
To encounter demand-pull inflation, governments and central banks would have
to implement tight monetary and fiscal policy like increasing the interest rate or lowering
government spending or raising taxes. An increase in the interest rate would make
consumer spend less on durable goods and housing. Through this the investment
spending will increase by firms and businesses. Also in demand-pull inflation is rising too
fast, so these contractionary policies would lower the rise, meaning inflation would still
occur but at a lower rate.
Local Literature
Inflation in the Philippines
Inflation refers to the rate of exchange in the average prices of goods and
services typically purchased by consumers. If inflation is low and stable, then we say
that there is price stability. Studies based on the experience of many countries have
shown that maintaining price stability supports economic growth because it allows
households and businesses (including export enterprises) to plan ahead and arrive at
better informed decisions about consumption, investment, savings and production
needs. In the case of export firms, price stability allows them to price their products
competitively, reducing the risks related to the rising cost of raw materials.
(BangkoSentral ng Pilipinas).
The inflation movement rate of Philippine economy in the past six decades, after
experiencing years of positive economic growth from 1960‟s to 1970‟s, the inflation
volatility of the country increased significantly for the period of 1973 to 1986 because
Philippine economy during these times, suffered from a downturn due to a mixture of
domestic and international problems. These were the years that saw the country under
President Ferdinand Marcos and martial law, the assassination of Benigno Aquino, Jr.,
changes to the Philippine energy law and the success of the EDSA People Power
Revolution (Kushida, 2008)
By fall 1984, highest increase of inflation rate was recorded because of
somewhat negative picture of the Philippines emerged. By the year‟s end, the nation
external debt was almost doubled from the projected $18 billion to $30 billion, and the
balance-of-payment deficit climbed above $2 billion. In September, industrial production
fell for the first time in many years, and huge lay out seemed imminent in the first quarter
of the next year, given an extremely low inventory of materials in manufacturing firms.
The rate of inflation doubled following two devaluations of the peso in June and October.
Also, the country faced its worst liquidity crisis since 1945 due to an estimated $1 billion
capital flight from late August to December (Kushida, 2008). After these periods, the
efforts of Philippine administration for radical changes and democratic reforms lead to
the recovery of the economy that is felt up to the present. Despite remarkable
movements of the country‟s inflation rate, generally, our economy remains to be stable.
Gross Domestic Product (GDP)
The economy of the Philippines is the world's 34th largest economy by nominal
GDP according to the 2017 estimate of the International Monetary Fund's statistics, it is
the 13th largest economy in Asia, and the 3rd largest economy in
the ASEAN after Indonesia and Thailand. The Philippines is one of the emerging
markets and is the sixth richest in Southeast Asia by GDP per capita values, after the
regional countries of Singapore, Brunei, Malaysia, Thailand and Indonesia.
The Philippines is primarily considered a newly industrialized country, which has
an economy in transition from one based on agriculture to one based more on services
and manufacturing. As of 2017, GDP by purchasing power parity was estimated to be at
$1.980 trillion.
Primary exports include semiconductors and electronic products, transport
equipment, garments, copper products, petroleum products, coconut oil, and fruits.
Major trading partners include Japan, China, the United States, Singapore, South Korea,
the Netherlands, Hong Kong, Germany, Taiwan and Thailand. The Philippines has been
named as one of the Tiger Cub Economies together with Indonesia, and Thailand. It is
currently one of Asia's fastest growing economies. However, major problems remain,
mainly having to do with alleviating the wide income and growth disparities between the
country's different regions and socioeconomic classes, reducing corruption, and
investing in the infrastructure necessary to ensure future growth.
The Philippine economy is projected to be the 5th largest in Asia and 16th
biggest in the world by 2050. According to the Price water house Coopers, it estimates
that it will be the 12th to 14th richest economy in the world by 2060. While this opposes
other reports from HSBC Holdings PLC, that by the year 2050, the Philippines will have
been stated to surpass the economy of Indonesia due to its yearly higher GDP growth
rate of 6.5% (Second, after China). However, the economic statistics may still vary
depending on the performance of the government every year.
The performance of the Philippine economy is monitored by looking at the year-
on-year growth of Gross Domestic Product (GDP), which measures the country‟s output
of goods and services during an accounting period. At current prices, GDP reflects the
total peso value of production and accounts for the effects of price changes. At constant
prices, the influence of price changes is eliminated; hence, it provides an overall index of
the physical volume of goods and services produced by the economy over the period.
GDP per capita refers to the ratio of the country‟s total value of goods and services to
the total population. It reflects the pace of growths of the country‟s economy with the
growth of the population. The Gross Domestic Product adjusted with the net primary
income from and to the rest of the world is the Gross National Income (GNI).
At constant prices, Gross Domestic Product amounted to P7.16 trillion in 2014. It
grew by 6.1 percent. Per capita GDP at P71, 726 was up by 4.3 percent. Gross National
Income was estimated at P8.64 trillion in 2014. It registered a 5.8 percent growth which
was lower than the 2013 increment of 8.1 percent.
Gross Domestic Product at current prices reached P12.64 trillion, an increase of
9.5 percent. In per capita terms, GDP amounted to P 126,579 and posted an increase of
7.7 percent. Gross National Income valued at P15.33 trillion moved up at a slower pace
of 9.1 percent in 2014 compared to last year‟s growth of 10.4 percent.
Government Policies
Monetary Policy Strategy in the Philippines
Throughout the crisis, the primary objective of the BangkoSentral ng Pilipinas
(BSP) remained to be “to maintain price stability”. Nonetheless, financial stability is an
important pursuit. Policy instruments were used in increasingly innovative ways, and the
BSP policy toolkit was broadened to address evolving economic conditions. This
strategy ensures that monetary policy is not overburdened in achieving both price and
financial stability.
According to Section 3 of Republic Act No. 7653 or the New Central Bank Act the
BSP‟s Ultimate Target is to provide that the primary objective of the BSP is to maintain
price stability conducive to a balanced and sustainable growth of the economy. The BSP
is also tasked to promote and maintain monetary stability and the convertibility of the
Philippine peso. In this connection, the BSP formulates and implements monetary
policies to support the objective of price stability. The BSP‟s framework for conducting
monetary policy is based on the interplay of a set of policy variables, as follows: (1) the
ultimate policy objective; (2) instruments of monetary policy; and (3) operating and
intermediate targets.
Sustainability of monetary policy in uncertain times, a speech made by William
Poole of the Federal Reserve Bank of St. Louis, emphasizes that the inflation objective
of the Fed is to maintain a low and stable rate of inflation which is a long-run economic
performance in terms of employment growth and maximized economic growth is
achieved.
Fiscal Policy
Just like there are different schools of thoughts on what causes inflation, there
are different opinions on how to deal with it. Demand-side policies are used to increase
or a decrease demand, to either expands or contracts the economy. These policies
focus on the aggregate demand, which is basically a combination of government and
consumer spending, investment, and net exports which are exports minus imports.
Demand policies can be based on fiscal policies, which have to do with government
spending or taxes, or monetary policies, which have to do with the money supply or
interest rates.
There is an issue relating to fiscal policy for sustainable growth is the impact of
government spending and debt on economic growth. The debt burden keeps the
government from providing services to the people and the necessary infrastructure to
help improve the economy. The trend in the government‟s budgetary policy is a rising
allocation of general public services and a decreasing budget for economic services.
This means that the government is in the essence of spending more for less important
matters and spending less on the areas that are more crucial in achieving sustainable
growth.
Fiscal stability after the financial crisis in 1990s remains in jeopardy. To raise its
sustainable growth rate, the Philippines needs to close its fiscal policy without
necessarily scarifying essential physical and social infrastructures. Posting a well-
behaved fiscal position after the Asian contagion set in, the government indulged in
deficit-spending in an attempt of stimulate the economy out of a mild recession. Both the
revenue (tax collection) and expenditures sides require tremendous restructuring efforts
and commitment.
Foreign Studies
An earlier study of R. Bautista (1983) who estimated an inflation equation based
on the annual growth of CPI. His results show that a large part of inflation for the period
1965- 1982 can be attributed to foreign price increases and the depreciation of the peso.
He does not find the growth of money supply and changes in the wage rate to be
significant.
Meanwhile, a further refinement to the studies of inflation is the empirical model
of C. Bautista (1991). By estimating a macroeconomic vector auto regression model
(VAR) and applying variance decomposition, Bautista shows that the forecast error
variance of inflation due to exchange rate movements is higher than that of money
supply growth. This lends support to the BOP view of inflation which maintains that the
exchange rate is the main cause of price changes. The empirical results do not show,
however, that the fiscal view of inflation, which contends that the main determinant is
money supply growth fuelled by fiscal deficits, is unimportant.
In the study of Takeshi Inoue, Yuki Toyoshima and Shigeyuki hamori it stated
that before inflation targeting (IT), the four Asian countries, that is, Korea, Indonesia,
Thailand, and the Philippines, commonly adopted monetary targeting. Due to financial
innovation and deregulation, however, the relationship between money supply and
output growth became less stable over time, which encouraged these countries to switch
their policy framework from monetary targeting to IT. Looking at the achievement of
inflation targets, these countries show different outcomes. In Thailand and Korea, actual
inflation has relatively fallen well within the target range, while Indonesia and the
Philippines have quite often failed to meet the target. Therefore, the achievement of the
inflation target varied across these countries, although the basic statistics such as the
mean and standard deviation indicate that the numbers were generally smaller than 18
those prior to the IT period, suggesting that the IT framework in Asia seems to have
succeeded in attaining the objectives of low and stable inflation. In recent years, a
growing body of empirical studies has been conducted to analyze IT in the Asian
emerging countries. These empirical studies tend to characterize IT by estimating the
monetary reaction function for each country and generally confirm that the central banks
under the IT regime have paid substantial attention to inflation developments when
conducting monetary policy. In this article, we investigate the impact of IT on the
economy from a different viewpoint than the surveyed literature. Specifically, we analyze
whether and to what extent the adoption of IT in these countries has affected
international business synchronization by employing the dynamic conditional correlation
(DCC) model developed by Engle (2002). From this analysis, we find that IT in Asia has
little effect on business cycle synchronization with the rest of the world and that the
effect is positive in some of the countries, if any. As relevant literature, Flood and Rose
(2010) examine whether the advent of IT in developed and developing countries
including the Asian countries can be linked to the rising international synchronization of
the business cycle by applying different methods, and they point out that countries that
target inflation seem to have cycles that move slightly more closely with foreign cycles.
Therefore, the findings basically seem to be consistent with the evidence from Flood and
Rose.
Advantages of IT:
The IT regime has several advantages as a monetary policy strategy when
compared with the other policy regimes: IT provides a nominal anchor for monetary
policy and inflation expectations; In contrast to the exchange rate targeting, IT gives
opportunity to respond shocks hitting to the economy and to focus domestic
considerations; IT does not require a stable relationship betweenmonetary aggregates
and inflation as in monetary targeting. It uses all available information in the formation of
the policy setting; as it is explained above, monetary policy shows its impact on the
economic activity with long and variable lags. IT regime gives an explicit role to the lags
of monetary policy in the choice of policy instruments; It is possible in the IT regime to
decrease the possibility of falling into time inconsistency trap by decreasing the pressure
coming from the politicians in order to stimulate the economic activitity; and other
advantage of the IT regime is its great emphasis on the regular communication with the
public and transparency. This property have important role in the success of the IT in the
industrialized countries. The policymakers in the developed countries use every
opportunity to communicate with the public like public speeches and a step further by
means of inflation reports; Transparency of the policy has inclination to make the policy
more accountable to the public and continuous success of the policy in reaching to
numerical targets increases the public support for the central bank; One of the
advantages of IT regime is its clarity for public understanding compared with the nominal
income targeting. In the nominal income-targeting regime, there is no decomposition for
the income component and price component. So, it might be difficult for the public to
built price expectations. In addition, the inflation targeting regime serves as an anchor for
wage and the price setters and the existence of such an anchor increases the credibility
of the policy.
Disadvantages of IT:
Inflation Targeting has disadvantages and here are somes: The inflation-
targeting regime has been criticized due to its overemphasis on inflation, its rigid
structure, its negative impacts on the economic growth and its exclusion other goals like
output stabilization.7 However, the countries‟ announcement of the targets above the
zero inflation rates reflects the fact that the central banks does not ignore the output
growths totally and it takes into account a possible deflation and the undesirable impacts
of deflation on the economic activity; It is claimed that there is only weak central bank
accountability in IT because in contrast to exchange rate and monetary aggregates,
inflation is difficult to control and the policy instruments show their impact on inflation
with long and variable lags.This problem is especially severe in the developing countries
when the rates of inflation are being brought down from high levels. In this situation,
there will be large forecast errors and frequent target misses. Therefore, it will be difficult
for the central bank to explain the reason for the deviations from the target and to gain
credibility, which is central to the IT regime. According to Masson etc. (1997) IT will be
more effective if it is started to implement this regime after successful disinflation.
Another factor that has influence on the ability of the central banks to control inflation is
the large existence of the government-controlled prices and this factor is of significant
importance for the developing countries. Successful IT implementation requires high
coordination between the people who determine these prices and the monetary
policymakers or the exclusion of these prices from the targeted rate in this circumstance.
Moreover, inflation forecasting procedure in these countries should take into account the
timing and magnitude of the changes in those prices; IT may not prevent fiscal
dominance. In the long run, large fiscal deficits will cause either monetization of the
deficits or devaluation and they will result in high inflation; Exchange rate flexibility
required by IT might cause financial instability; There are some economists (e.g. Calvo
1999b, Calvo and Mendoza 2000) who argue that the IT regime is too discretionary and
it may cause policy makers to follow overly expansionary policies. However, as it is
explained in this paper, IT regime increases the accountability and transparency of the
policy. Accountability increases the costs of policy mistakes for policy makers and
transparency makes difficult to conduct overly expansionary policy without it being
noticed. So, it does not seem plausible to assert that the monetary policy in the IT
regime is too discretionary; and some economists argue that IT is too rigid and it
impedes the monetary authorities from responding to the shocks hitting the economy.
However, it can be argued that IT is far from being a rigid rule; it can be evaluated as
„constraint discretion. It does not impose simple rules about the conduct of the monetary
policy. Contrary to simple rules, IT regime obligates policy makers to use all available
information in order to achieve the target.
Phillips Curve
The Phillips curve is the economic relationship between the change of
inflation on the one hand and unemployment on the other. It was observed in 1958
by an English economist by the name of A. W. Phillips, and it provides a connection
between the change of nominal wages and unemployment (Phillips, 1958). This
model was adopted and extended in subsequent years, with similar patterns also
found for the U.S. (Samuelson and Solow, 1960). This relationship was considered
permanent and presented policy makers with a choice between high unemployment
with low inflation or an alternative a low unemployment with high inflation. However,
Friedman and Phelps criticized this because they considered the origin of the
negative relationship in a bias of the inflation expectations of workers (Friedman
1968; Phelps 1968). Therefore, the inverse relationship between inflation and
unemployment was only found up to an adjustment of inflation expectations, and
subsequently moves back to the natural rate of unemployment. By this chain of

reasoning, the first version of the Phillips curve had a natural rate of unemployment
as well as containing inflation expectations. The consequence of this model was that
inflation only has a short run effect on unemployment. After an adjustment process to
the natural rate of unemployment, there will be only an increase in inflation.
Therefore, there are no advantages of raising inflation to a higher level, and thus it
should rather remain low and constant.
How the chain of arguments as presented by the Phillips curve was
understood as a form of adaptive expectations formation (2.01). However, this
changed during the 1970s and the occurrence of the two oil price shocks, owing to
the change in the expectation formation of wage setters. Previously inflation was
subject to certain fluctuations around a general level of inflation, while in the 1970s
inflation rose continuously. The probability that a higher inflation rate followed a high
inflation rate in the next year rose, thus avoiding the previous tradeoff between
inflation and unemployment. In the following years, a large number of countries
observed a simultaneous increase in inflation and unemployment, and this stagflation
led to a new modification of the Phillips curve with forward-looking inflation
eexpectations (Lucas, 1972/1973).
Local Studies
In the study of Joseph T. Yap about the inflation and Economic in the Philippines,
the results shows that The Machiavellian approach to controlling inflation has not been
effective in the Philippines. Certainly, Krugman's warning about the serious
repercussions of some methods of disinflation is quite relevant especially when
juxtaposed against the potential costs of inflation. Financial managers responded
appropriately during the crisis periods but were rather short-sighted during the recovery
phases particularly during the period 1986-95. For one thing, a more aggressive debt
management strategy should have been adopted. But even with the "honor flay debt"
commandment in place, monetary, fiscal and exchange rate policy should not have been
formulated in a manner that sacrifices long-term growth. Definitely, an inflation of 10-15
percent could have been tolerated as long as the source was productivity-enhancing
government expenditure. A steady depreciation to maintain a realistic real exchange rate
could have been accommodated in this scenario. As it stands now, economic managers
have to contend with volatile capital flows and as a result, the wisdom of liberalizing the
capital account ahead of the trade sector is being questioned. To prevent further
appreciation of the real effective exchange rate in the presence of these capital flows, it
has been proposed that instead of targeting monetary aggregates, the Central Bank
targets interest rates and an appropriate real exchange rate (De Dios, 1995).
Nevertheless, the key to macroeconomic stability is strong fiscal performance via a
higher tax effort. This is what preoccupies the government at present and the outcome of
the tax reform program still hangs in the balance.

METHODOLOGY
This chapter describes the methodology of research study, research design,
sources of data and statistical treatment of data. In this study methodologies used to
analyzed and interpret the influence of inflation targeting on growth and employment in
agricultural sector in the Philippines.
Research Design
This study used descriptive-co relational method. It was descriptive since it
involved collection, analysis and interpretation of data. Correlation, on the other hand, it
utilized to depict and find out to which at least two variables were connected.
The descriptive-co relational method used in order to determine the influence of
inflation targeting on growth and employment in agricultural sector in the Philippines.
Sources of Data
The study used secondary data taken from the Philippine Statistics Authority
(PSA) and Bangko Sentral ng Pilipinas (BSP) from 2002-2017. The researchers
personally collected the data within the permission of the personnel.
Null Hypothesis
= Actual Inflation does not have significant effect on Employment
= Actual Inflation does not have significant effect on Economic Growth
Actual and target inflation rate using minimum value does not have significant
difference
Actual and target inflation rate using maximum value does not have significant
difference
Statistical Treatment of Data
Simple Linear Regression is a model with a single regressor x that has a
relationship with a responses y that is straight line. This simple linear regression model
can be expressed as:
Y= (1)
Where the intercept and the slope are unknown constants and is a
random error component.
Empirical Model
The empirical model was based on the theoretical and conceptual framework of
the study, the theoretical is based on the theory of demand pull and cost push theory
while the conceptual framework proposes the inflation targeting on growth and
employment in agricultural sector. The independent variable is inflation targeting and
dependent variables are economic growth and employment. The researchers proposed
four models in depicting the influence of inflation targeting that may result in economic
growth in terms of GDP and employment.
Model 1: Actual Inflation= f (Target Inflation)
Model 2: Target Inflation= f (Actual Inflation)
Model 3: Employment= f (Actual Inflation)
Model 4: Economic Growth (GDP) = f (Actual Inflation)
Research Model
The following economic models are designed to provide statistical basis for
accepting the null hypothesis of this study. The models will be estimated using the
simple linear regression analysis.

Model 1: (2)
Model 2: (3)
Model 3: (4)
Model 4: (5)
Where:
AI = Actual Inflation
EG = Economic Growth
TI = Target Inflation
E = Employment
GDP = Gross Domestic Product
t-1 = Lagged Term
Test of significant difference of two parameters
The parameters of the model will be tested for statistical significance at 5 percent
level using t-test. T-test is a test of significance. It is a ratio of estimated regression
coefficient divided by its standard error. It is a procedure by which mean sample results
are used to verify the truth or falsity of null hypothesis. (Gujarati, 2003)
(6)
Where: parameter of the kth variable
standard error of the parameter of the kth variable
If the computed t-ratio of a coefficient exceeds, in absolute value, the critical
value of the t-ratio at 5 percent level of significance, then the parameters are statistically
significant.
Unit root
To test the stationary or (non-stationary) in a time series the unit root test will be
used. This can be written as:
+ (7)
If the coefficient of is equivalent to 1, then the variable at that point is said to
have a unit root and as a result non-stationary. Regressing non-stationary variables are
trending up or down, as often the case for economic variables.To find out whether the
variables of a model are stationary or non-stationary, the Augmented Dickey-fuller (DF
test with provision for intercept, for domestic time trend, t, augmented by lagged terms
of the variable) will be used as follow:
(8)
Where:
= the level series of y lagged by 1 period
= original series has intercept
t = series has deterministic time trend
= lagged term
= white noise
If the coefficient is more negative than 1%, 5% and 10% levels of
significance, based on Mickinnon critical values, then the series at level is said to have a
unit root while its first difference, is a stationary. All variables would be tested for unit
root while its first difference is stationary.

Durbin Watson Test
In order to test the autocorrelation in the residuals from a statistical regression
analysis Durbin Watson test will be use. The Durbin Watson statistics is always between
0 and 4, a value of 2 means that there is no autocorrelation in the sample.
∑
D.W = ∑
(9)
Ramsey Reset (Regression Specification Error Test)
In the design of economic models, the ambiguity of the underlying theory may
lead the researcher to commit error in the specification of the functional relationships.
Such errors could have arisen due to omission of variables, inclusion of unnecessary
variables, or wrong functional form. In any case, this could result to larger variances and
render the parameters statistically insignificant.
To minimize the incidence of these lapses, Ramsey‟s regression specification
error test (RESET) was applied on each of the models. The testing procedures were as
follows:
1.) Assuming that a model is potentially mis-specified, its estimated mean value was
obtained.
2.) The model is re-run by introducing Y, in some form, as an additional repressor(s).
3.) The R2 for both regression results will be obtained and the F test were applied
on it as follows:
n- no. of parameters in new model
4.) If the computed F is statistically significant, then the model is missed specified.
The result of this test determines whether to accept or reject hypothesis.

RESULTS AND DISCUSSION
This chapter includes the analysis and the interpretation of all the gathered data.
It includes the analysis of the pattern of inflation rate, employment and Gross Domestic
Product in the Philippines for 2002 to 2017; significant difference between actual and
target inflation rate; and significant influence of inflation targeting on employment and
Gross Domestic Product in the Philippines.
Pattern of inflation rate
Inflation is typically defined as the annual percentage change in the Consumer
Price Index (CPI). The CPI represents the average price of a standard basket of goods
and services consumed by a typical Filipino family for a given period. This standard
basket contains hundreds of consumption items (such as food products, clothing, water
and electricity) whose price movements are monitored to determine the change in the
CPI, or the level of inflation (Bangko Sentral ng Pilipinas). Figure 1 shows the Philippine
Inflation rate from 2002 to 2017.
The Philippine inflation rate is in positive state from the year 2002 to 2007, it is
the year when the Bangko Sentral ng Pilipinas (BSP) formally adopted inflation targeting
or announces an explicit inflation target with a strong commitment of achieving it over a
policy horizon using various monetary policy instruments. Meanwhile, the last double-
digit monthly inflation rate recorded was in September 2008, when it hit 10.1 percent
(using base year 2012) under the Arroyo administration. Before that, it was 10.2 percent
in July and 10.5 percent in August also in 2008. Some economies said that it is because
of the influx of rice imports and the global crisis, which slowed down overall economic
growth. This last double digit monthly inflation rate recorded last September 2008 was
followed by September 2018 with the rate of 6.7. It is recorded as the highest inflation
rate over the last 9 years. It was also the 9th consecutive monthly inflation rate increase,
which started in January 2018.
In the year 2002 until 2017, the Philippines highest actual inflation rate in
minimum value is 5.9 percent in the month of December year 2005 while the maximum
is 10.5 percent in the month of August year 2008. Meanwhile, target inflation is annually
announces by the Bangko Sentral ng Pilipinas (BSP) and the highest target inflation rate
in minimum value is 4.5 percent in the year 2002, 2003 and 2010 while the maximum is
5.5 percent in the year 2002, 2003 and 2010.
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ACTUALM AX ACTUALM IN
TARGETM AX TARGETM IN
Figure 2. Philippine Inflation Rate, 2002-2017
Employment
Indicators relating to labor market such as employment measures the rate of
absorption of available manpower supply in the production of goods and services. On
the other hand, unemployment indicates the inefficiency of the labor market to absorb
the available human resources to contribute to production activities.

The number of gainfully employed persons in agriculture measures the extent of
absorption of the available manpower supply in agriculture and its contribution to the
total economy. In 2016, about 11.06 million persons were employed in agriculture. This
comprised 27.0 percent of the country‟s total employment. The biggest counts of the
employed persons in agriculture were recorded in Western Visayas at 1.10 million and
Central Visayas at 0.94 million. Agricultural employment was also bigger in Cagayan
Valley, Bicol Region, Northern Mindanao, SOCCSKSARGEN and ARMM ranging from
0.73 million to 0.84 million persons. In contrast, the least employment in agriculture was
located in NCR with 25,000 persons.
At the regional level, agriculture accounted for a bigger share in ARMM at 65.0
percent of the region‟s total employment. This was followed by Cagayan Valley with
about half of the total employment were absorbed by the agriculture sector. Agricultural
employment contributed 41.8 percent to 44.4 percent in CAR, MIMAROPA, Zamboanga
Peninsula and SOCCSKSARGEN. The least shares were in CALABARZON at 9.7
percent and in NCR at 0.5 percent.
In 2002 until 2008 the percentage of the employment in agriculture is increasing
because Philippines is still in agricultural based.
Countrywide, there were 12.04 million persons employed in agriculture in 2009.
The number of employed persons expanded by an average of 1.0 percent yearly from
2006 to 2009. The sector‟s share in total employment went down to 34.3 percent. The
shares contracted by an average of 1.4 percent annually.
In 2013, the country‟s labor productivity in agriculture amounted to P 109,575 at
current prices or P 59,706 at constant prices. Average yearly increases corresponded to
4.3 percent and 3.8 percent during the period 2011 to 2013.
In 2015, a total of 11.29 million persons were employed in the agriculture sector.
This accounted for a share of 29.2 percent in the country‟s total employment. At the
regional level, the most number of employed persons in agriculture was located in
Western Visayas at 1.17 million.
In 2016, about 11.06 million persons were employed in agriculture. This
comprised 27.0 percent of the country‟s total employment and in 2017, there were 10.26
million persons who were employed in agriculture. This was equivalent to a share of 25.4
percent in the country‟s total employment.
Gross Domestic Product
The trend of the Gross Domestic Product in agricultural sector in the Philippines
in decreasing over the time, the composition of the gross domestic product is broadly
split among the agricultural, industrial and service sectors. According to 2017 World
Bank data, agriculture accounted for 9.7 percent of GDP, marking the lowest contribution
to GDP in the country's history. To put that into perspective, agriculture accounted for
one-quarter of the country's GDP during the 1980s and almost one-third in the 1970s.
Meanwhile, the industrial and service sectors accounted for 30.5 percent and 60
percent, respectively in 2017. Note that the share of industrial output has steadily fallen
as well over time, while the services sector has risen substantially.
The Philippines has gradually shifted from an agrarian to an industrial and
service-oriented economy. In 1980, agriculture accounted for about one-fourth of the
nation‟s GDP, but that has dwindled over the years. The agricultural sector (including
forestry, hunting, fishing, the cultivation of crops and livestock production according to
the World Bank) now accounts for only 9.6 percent of the GDP. That said, it accounts for
about 30 percent of the workforce. The main agricultural products are sugarcane,
coconuts, rice, corn, bananas, cassava (manioc), tapioca, pineapples, mangoes, pork,
eggs, beef and fish.This low level of productivity and slow growth in the Philippines‟
agricultural sector has resulted in a high incidence of poverty within the sector. The lack
of government initiatives has been primarily responsible for the decline of the agricultural
sector, which has suffered from poor infrastructure and low levels of investment. These
factors got accentuated with the long seasons of drought that the country suffered.
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Figure 3. Philippine Employment and Gross Domestic
Product, 2002-2017
Significant difference between actual and target inflation rate
Table 1. Philippines actual and target inflation rate in minimum and maximum value
Year Minimum Maximum Minimum Maximum
Actual actual Target Target
2002 2.1 3.4 4.5 5.5
2003 1.9 2.8 4.5 5.5
2004 2.9 7.1 4 5
2005 5.9 7.3 5 6
2006 4.1 6.6 4 5
2007 2.6 3.8 4 5
2008 4.6 10.5 4 5
2009 1.7 7.2 3.5 4.5
2010 3.2 4.1 4.5 5.5
2011 4 5.2 4 5
2012 2.6 4 4 5
2013 2.1 4.1 4 5
2014 2.7 4.9 4 5
2015 0.4 2.5 3 4
2016 0.9 2.6 3 4
2017 2.7 3.5 3 4
Table 2. T-test result comparing actual and target inflation rate using minimum value
Variances Mean T- value P Value Remarks
Actual 2.78 -3.10 0.00* Reject
Target 3.94 -3.10 0.00* Reject
* significant at 1 percent level p<0.01
The T-test statistics shows that the actual and target inflation using minimum
value is significant with t-value of -3.10 at one percent level of significance. Table 2
showed that target inflation is higher than the actual. The result showed that the lowest
inflation rate experienced by the country is 1.16 percent below the target inflation. In
implication to it in the economy, why actual inflation is lower than the target is because of
limitations to the effectiveness of monetary policy and deviations from the inflation target
may sometimes occur due to factors beyond the control of the central bank. It include
price pressures arising from: volatility in the prices of agricultural products; natural
calamities or events that affect a major part of the economy; volatility in the prices of oil
products; and significant government policy changes that directly affect prices such as
changes in the tax structure, incentives and subsidies that result to the fluctuating or
changes in the price of goods and the decision making of the citizens in relation with
money.
Table 3. T-test result comparing actual and target inflation rate using maximum value
Variances Mean T- value P Value Remarks
Actual 4.98 0.07 0.00* Reject
Target 4.94 0.07 0.00* Reject
* significant at 1 percent level p<0.01
The T-test statistics shows that the actual and target inflation using maximum
value is significant with t-value of 0.07 at one percent level of significance. Table 3
showed that actual inflation is higher than the target. The result showed that actual and
target inflation rate using maximum value is significant at 0.04 percent which experience
by the country. Monetary policy typically operates with a lag, so that policy actions
undertaken during a particular year would exert most of their impact on the economy
only after some time lag which, in the case of the Philippines, is estimated to be about
two years. This implies that the actions of the BSP at any given time are always based
on its assessment of the outlook for inflation and output two years ahead.
Influence of Inflation on Growth and Employment in Agricultural Sector
In this study, the independent variable was actual inflation determined by Bangko
Sentral ng Pilipinas (BSP) while the dependent variables are the growth in terms of GDP
and employment in agricultural sector. The relationship between independent and
dependent variables was measured using ordinary least square regression.
Unit Root Test. It was conducted before regressing the variables in order to
determine whether a time series variables is non-stationary and possesses a unit root.
The model is stationary when time series observations in the variables possess a
constant mean, variance, co-variance over time. If the model does not meet the
requirements, the variables and the model are prone to random walk and can lead to
said unauthentic and uncertain regression result. The test starts with the initial
identification of random walk behavior in variables on its level form. This was the
analyzed form graphical illustration of the variable such as; actual inflation, GDP and
employment.
The graph of employment and GDP showed a decreasing pattern, and it
represent a random walk. Therefore, employment and GDP in agricultural sector has a
mean that grows around a fixed trend, which is constant and independent of time. On
the other hand, actual minimum inflation and actual maximum inflation shows a neither
upward nor downward trend. It is shown that the fluctuation in the variables indicates a
non stationary series. The graph of the independent and dependent variables at level
form was shown in Figure 4.

ACTUALMIN ACTUALMAX
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Figure 4. The graph of the independent and dependent variables at level form
The result of the Augmented Dickey Fuller test of all variables at level form was
shown in Table 4 and proven that there is an existence of unit root in inflation targeting.
Table 4. The result of Augmnted Dickey Fuller test of all variables at level form.
VARIABLES 1% C.V. 5% C.V. 10% C.V ADF STAT
LEVEL FORM
Actual Inflation -4.73 -3.76 -3.32 -3.27
(Maximum)

(Minimum)
GDP -4.89 -3.83 -3.36 -0.91
Employment -4.10 -3.88 -3.39 1.13
The computed ADF statistics were -3.27 for actual maximum inflation, -3.73 for
actual minimum inflation, -0.91 for GDP, and 1.13 for employment. The ADF statistics
results of variables are lower than the computed ADF critical values at 1 percent, 5
percent, and 10 percent and it indicates that unit root may exist in the observations. The
results at ADF level form show that there is a unit root that exists in the variables and
must be subjected to ADF at first difference to replace the level form. The graph of the
independent and dependent variables at first difference was shown in Figure 5. This
illustrates a decreasing and increasing trend. It is shown that the fluctuation in the
variables indicates that there is still unit root in the variables.

DACTUALMIN DACTUALMAX
4 8
3 6
2
4
1
2
0
0
-1
-2 -2
-3 -4
02
03
04
05
06
07
08
09
10
11
12
13
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15
16
17
02
03
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20
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20
20
20
20
20
DGDP DEMPLOYMENT
1 1
0
0
-1
-1
-2
-2 -3
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
02
03
04
05
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20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Figure 5. The graph of the independent and dependent variables at first
difference
The results of Augmented Dickey Fuller test of all variables after differencing was
shown in Table 5. The computed ADF statistics were -4.58 for actual maximum inflation,
-4.58 for actual minimum inflation, -4.58 for GDP and -0.44 for employment. The
computed ADF statistics for all the variables did not passed the critical values at 1
percent, 5 percent, and 10 percent levels of significance and it is subjected to ADF at
second difference to replace the first difference.
Table 5. The result of Augmented Dickey Fuller test of all variables at first difference.
ADF STAT
VARIABLES 1% C.V. 5% C.V. 10% C.V FIRST
DIFFERENCE
(Maximum)

(Minimum)
GDP -5.30 -4.01 -3.46 -4.58
Employment -5.12 -3.93 -3.42 -0.44
The graph of the second difference of actual minimum inflation, actual maximum
inflation, GDP and employment in agricultural sector shows its consistent fluctuations
which can be an indicator of constancy in the mean. The graph of the second difference
was shown in Figure 6.

DACTUALMAX DACTUALMIN
12 6
8 4
4 2
0 0
-4 -2
-8 -4
-12 -6
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
02
03
04
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20
20
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20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
DGDP DEMPLOYMENT
2 2
1
1
0
0
-1
-1
-2
-2 -3
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
02
03
04
05
06
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20
20
20
20
20
20
Figure 6. The graph of the independent and dependent variables at second difference
The results of Augmented Dickey Fuller test of independent and dependent
variables after second differencing was shown in Table 6. The computed ADF statistics
were -5.79 for actual maximum inflation, -10.91 for actual minimum inflation, -6.26 for
GDP and -4.33 for employment. The computed ADF statistics for all the independent
and dependent variables has passed in the critical values at 1 percent, 5 percent, and 10
percent levels of significance. In other words, the regression of time series variables
passed in the second difference in unit root.

Table 6. The result of Augmented Dickey Fuller test of all variables at second difference.
ADF STAT
VARIABLES 1% C.V. 5% C.V. 10% C.V SECOND
DIFFERENCE
(Maximum)

(Minimum)
GDP -5.30 -4.01 -3.46 -6.26
Employment -5.52 -4.11 -3.52 -4.33
Regression Result. In able to determine whether GDP and employment was
related to actual inflation, Ordinary Least Square Regression (OLS) was used in the
study. In addtion, the test was engaged to estimate the parameters of the reggression
model. The regression result using ordinary least square on actual inflation was shown
in Table 7 and Table 8.
A higher inflation rate may cause to reallocation of scarce resources to
unproductive activities and thus distort economic efficiency and reduce output growth.
According to Fischer and Modigliani (1980) suggested that a negative and nonlinear
relationship between the rate of inflation and economic growth through the new growth
theory mechanism proposed a model where the agents decide the level of labor output,
and increase inflation reduces labor supply, and producing a decrease in economic
production. Gillman and Nakov (2004) examined the relationship between inflation and
output growth in some developing countries and found out that inflation affects the
growth negatively.
The relationship between inflation and employment was emphatically the
opposite assumed by the Phillips Curve. Seyfried, W., among the G7 countries, a
positive and significant relationship between growth and employment was found only in
Germany and US. In addition, according to Verdoon (1949) and Kaldor (1966), an
increase in output growth of 1 percent leads to an increase in productivity and
employment growth, but there are several studies have been conducted to examine the
correlation exists between employment and inflation rate. Spithoven, A.H.G.MA (1995)
studied that evidently there was no fixed relationship between unemployment and
inflation.The result in Table 8 and Table 9 showed that there is no significant relationship
between independent and dependent variables.
Table 7. The regression result using ordinary least square regression on Actual
Maximum Inflation
VARIABLES
PARAMETER T-VALUE P-VALUE REMARKS
DEPENDENT INDEPENDENT ESTIMATES
Employment Intercept -0.15 -0.65 0.53**
Inflation Rate 0.09 1.81 0.10* Accept
GDP Intercept -0.36 -2.61 0.02*
Inflation Rate 0.01 0.41 0.69** Accept
*significant at 1 percent level P<0.01

**significant at 5 percent level P<0.05
Table 8. The regression result using ordinary least square regression on Actual
Minimum Inflation
VARIABLES
PARAMETER T-VALUE P-VALUE REMARKS
DEPENDENT INDEPENDENT ESTIMATES
Employment Intercept
-0.15 -0.65 0.53**
Inflation Rate Accept
0.09 1.81 0.10*
GDP Intercept
-0.35 -2.73 0.02*
Inflation Rate Accept
-0.07 -1.49 0.16*
*significant at 1 percent level P<0.01

**significant at 5 percent level P<0.05
The models explain that in Actual Maximum Inflation, Employment and GDP had
no significant relationship. An increase in inflation rate at 0.09 would decrease the
employment by -0.15 and I an increase in inflation rate at 0.01 would decrease the GDP
at -0.36. The null hypothesis 1 and 2 was accepted.
The models explain that in Actual Minimum Inflation, Employment and GDP had
no significant relationship. An increase in inflation rate at 0.09 would decrease the
employment by -0.15 and an increase in inflation rate at 0.01 would decrease the GDP
at -0.35. The null hypothesis 1 and 2 was accepted.
Table 9. Durbin Watson Statistics result of Employment and GDP

Actual Maximum Inflation Actual Minimum Inflation
Employment 2.65 2.72
GDP 3.15 2.80
The computed Durbin Watson test statictics values in both maximum and
minimum inflation targeting in farmgate, wholsale and retail prices does not lies between
the lower and upper limit tabulated values of dL= 0.738 and dU=1.253 respectively, the
null hypothesis is rejected. This suggests that there is no serial correlation among
residuals of the variables.
Futhermore, the computed R squared illustrates that 1 percent for GDP and 21
percent for employment the variation of the independent variables which is actual
maximum inflation was explained by the dependent variables such as the results
indicated further that the fitted model was statistically significant.

The computed R squared illustrates that 15 percent for GDP and 24 percent for
employment the variation of the independent variables which is actual minimum inflation
was explained by the dependent variables such as the results indicated further that the
fitted model was statistically significant.
Test of specific errors. In able to determine specification error, Ramsey Reset
was applied. If the computed F value is significant, one can accept the hypothesis that
the model is mis-specified. The test verifies if there are important variables disregard in
the model. Table 10 shows the summary of the Ramsey reset result of the model.
Table 10. Ramsey Reset Result of Actual Maximum Inflation

F Statistics Probability
GDP 1.45 0.25
Results suggest that employment obtaining a F-statistics of 0.03 and GDP
obtaining a F-statistics of 1.45 shows a specification. Therefore, the hypothesis
indicating that the model is mis-specified is rejected.
Table 11. Ramsey Reset Result of Actual Minimum Inflation

F Statistics Probability
GDP 4.38 0.04
Results suggest that employment obtaining a F-statistics of 2.57 and GDP
obtaining a F-statistics of 4.38 shows a specification. Therefore, the hypothesis
indicating that the model is mis-specified is rejected.

SUMMARY, CONCLUSION AND RECOMMENDATION
This chapter included the summary of findings, conclusion and
recommendations. The summary provides a discussion for each of the findings, using
anchor verbiage that justifies rather than distorts the intent of the findings. Furthermore,
the conclusions discussed the theoretical and practical implications of the findings that
will lead to the novel contribution knowledge. This concluding part displayed an in-depth
understanding of the researcher that adds to the scientific body of knowledge. Lastly, the
recommendation for future research highlighted the limitation and suggestions for future
research base on analysis made.
Summary
The purpose of the study was to analyze the influence of inflation targeting on
growth and employment in agricultural sector in the Philippines; to describe the pattern
of inflation rate, GDP and employment in agricultural sector in the Philippines, to
determine if there is any significant difference between actual and target inflation rate,
and to determine the significant influence of inflation on growth and employment in
agricultural sector. The conceptual framework was constructed by having the actual and
target inflation rate as the independent variables while the dependent variables are the
employment and economic growth.
The methodology used was descriptive-co relational method using secondary
data taken from the Philippine Statistics Authority (PSA) and Bangko Sentral ng Pilipinas
(BSP).
Statistical result showed particularly, t test that the actual and target inflation
using minimum value is significant with t-value of -3.10 at one percent level of
significance and lowest inflation rate experienced by the country is 1.26 percent below
the target inflation while in maximum value the actual and target inflation using maximum
value is significant with t-value of 0.06 at one percent level of significance. The actual
and target inflation rate using maximum value is significant at 0.04 percent which
experience by the country. However, in testing if inflation targeting can influence the
employment and GDP in agricultural sector, the result of regression showed that there is
no influence in employment and GDP. Furthermore, the result in Durbin Watson test
shows that the inflation targeting, employment and GDP had no serial correlation.
Models were not found to be mis-specified as independent and dependent variables
passed the test for specification error using Ramsey RESET Test.
Conclusion
Based on the empirical results the following conclusions were drawn: The
null hypothesis that the actual and target inflation using minimum value doesn‟t have a
significance diffrence was rejected while using maximum value is accepted. In
implication to it to the economy the result would affect the price of goods and the
decision making of the citizen of a country if the monetray policy is not effective and if it
is effective it would help the country to have a stable price which the Bangko Sental ng
Pilipinas main objective. On the other hand, the null hypothesis that the inflation
targeting does not have influence in employment and GDP was accepted. There is no
significant influence between all variables because in every increase of inflation rate
would give negative effect in employment and gross domestic product.
Recommendation
The empirical result from the simple linear regression shows that inflation
targeting does not have an influence on growth and employment in agricultural sector in
the Philippines. Nonetheless, the study recommends the government to implement
another monetary policy that will help the inflation stable and do another alternative
policy that is more effective than the inflation targeting. It‟s also recommended strongly
that special attention be given to policy implementation. In this regard, the
government should set up a policy implementation body or committee in the presidency
for the purpose of monitoring government policies and ensuring that they are
implemented according to prescriptions. Further investigation on what more economic
variables that can be affected by inflation targeting is recommended.

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APPENDICES
Appendix 1. Actual and Target Yearly Inflation Rate at Minimum and Maximum in the
Philippines
Year Minimum Maximum Minimum Maximum
Actual Actual Target Target
2002 2.1 3.4 4.5 5.5
2003 1.9 2.8 4.5 5.5
2004 2.9 7.1 4 5
2005 5.9 7.3 5 6
2006 4.1 6.6 4 5
2007 2.6 3.8 4 5
2008 4.6 10.5 4 5
2009 1.7 7.2 3.5 4.5
2010 3.2 4.1 4.5 5.5
2011 4 5.2 4 5
2012 2.6 4 4 5
2013 2.1 4.1 4 5
2014 2.7 4.9 4 5
2015 0.4 2.5 3 4
2016 0.9 2.6 3 4
2017 2.7 3.5 3 4
Appendix 2. Total number of employed persons in agriculture by region, Philippines,
2006-2017 (in „000 persons)
REGION 2006 2007 2008 2009 2010 2011
Philippines 11,682 11,786 12,030 12,043 11,956 12,268
NCR 36 36 29 31 25 31
CAR 352 360 369 367 375 366
Ilocos Region 715 690 706 734 752 764
Cagayan Valley 808 810 793 832 797 848
Central Luzon 757 780 792 795 802 830
CALABARZON 766 757 763 763 759 742
MIMAROPA 581 581 602 619 618 649
Bicol Region 882 877 916 875 844 852
Western Visayas 1,178 1,197 1,205 1,155 1,155 1,220
Central Visayas 800 817 851 856 863 906
Eastern Visayas 760 758 761 756 743 769
Zamboanga 659 667 675 696 712 699
Peninsula
Northern 784 768 814 801 805 826
Mindanao
Davao Region 693 699 729 703 683 746
SOCCSKSARGEN 764 789 811 836 819 832
Caraga 407 400 416 410 392 388
ARMM 740 800 797 814 812 799
REGION 2012 2013 2014 2015 2016 2017
Philippines 12,093 11,835 11,801 11,294 11,064 10,261
NCR 31 29 31 26 25 26
CAR 351 348 372 365 335 315
Ilocos Region 698 649 662 635 596 513
Cagayan Valley 844 846 819 823 754 658
Central Luzon 820 846 832 751 659 586
CALABARZON 721 669 725 649 554 536
MIMAROPA 626 598 596 578 546 495
Bicol Region 887 866 859 871 841 698
Western Visayas 1,140 1,107 1,206 1,173 1,103 1,025
Central Visayas 874 880 904 898 941 911
Eastern Visayas 788 807 501 442 690 622
Zamboanga 661 659 632 614 683 612
Peninsula
Northern 846 773 849 759 729 733
Mindanao
Davao Region 716 690 703 641 695 667
SOCCSKSARGEN 843 837 829 810 775 803
Caraga 386 391 393 386 397 402
ARMM 861 840 888 874 741 659
Appendix 3. Yearly Employment Rate in Agricultural Sector in the Philippines
YEAR EMPLOYMENT RATE
2002 37
2003 37
2004 36
2005 36
2006 36
2007 35
2008 35
2009 34
2010 33
2011 33
2012 32
2013 31
2014 31
2015 29
2016 27
2017 25
Appendix 4. Yearly Economic Growth (GDP) Rate in Agricultural Sector in the
Philippines
YEAR GDP RATE
2002 14
2003 14
2004 14
2005 13
2006 13
2007 13
2008 13
2009 13
2010 12
2011 12
2012 11
2013 11
2014 10
2015 10
2016 9
2017 9
Appendix 5. T-test result comparing actual and target inflation rate using
minimum value
t-Test: Two-Sample Assuming Equal
Variances
Variable 1 Variable 2
Mean 2.775 3.9375
Variance 1.907333333 0.329166667
Observations 16 16
Pooled Variance 1.11825
Hypothesized Mean Difference 0
df 30
t Stat -3.10934206
P(T<=t) one-tail 0.002043013
t Critical one-tail 1.697260851
P(T<=t) two-tail 0.004086026
t Critical two-tail 2.042272449
Appendix 6. T-test result comparing actual and target inflation rate using
maximum value
t-Test: Two-Sample Assuming Equal
Variances
Actual Target
Mean 4.975 4.9375
Variance 4.874 0.329166667
Observations 16 16
Pooled Variance 2.601583333
Hypothesized Mean Difference 0
df 30
t Stat 0.065759332
P(T<=t) one-tail 0.474002854
t Critical one-tail 1.697260851
P(T<=t) two-tail 0.948005707
t Critical two-tail 2.042272449
Appendix 1. Unit Root Result of all Independent and Dependent Variables at Level
Form
Null Hypothesis: ACTUALMIN has a unit root

Exogenous: Constant, Linear Trend Null Hypothesis: ACTUALMAX has a unit root
Lag Length: 1 (Automatic - based on SIC, maxlag=3) Exogenous: Constant, Linear Trend
Lag Length: 0 (Automatic - based on SIC, maxlag=3)
t-Statistic Prob.*
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -3.733190 0.0548
Test critical values: 1% level -4.800080 Augmented Dickey-Fuller test statistic -3.266925 0.1094
5% level -3.791172 Test critical values: 1% level -4.728363
10% level -3.342253 5% level -3.759743
Null Hypothesis: EMPLOYMENT has a unit root
10% level -3.324976
Null Hypothesis: GDP has a unit root Exogenous: Constant, Linear Trend
*MacKinnon (1996) one-sided p-values.
Exogenous: Constant, Linear Trend Lag Length: 3 (Automatic - based on SIC, maxlag=3)
Warning: Probabilities and critical values calculated for 20 observations *MacKinnon (1996) one-sided p-values.
and may not be accurate for a sample size of 14 Warning: Probabilities and critical values calculated for 20 observations
t-Statistic Prob.*
and may not be accurate for a sample size of 15
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic 1.129801 0.9995
Augmented Dickey-Fuller Test Equation
Augmented Dickey-Fuller test statistic -0.907263 0.9224 Test critical values: 1% level -4.992279
Dependent Variable: D(ACTUALMIN) Augmented Dickey-Fuller Test Equation
Test critical values: 1% level -4.886426 5% level -3.875302
Method: Least Squares Dependent Variable: D(ACTUALMAX)
5% level -3.828975 10% level -3.388330
Date: 04/26/19 Time: 19:06 Method: Least Squares
10% level -3.362984
Sample (adjusted): 2004 2017 Date: 04/26/19 Time: 19:07
Included observations: 14 after adjustments Sample (adjusted): 2003 2017
*MacKinnon (1996) one-sided p-values. Warning: Probabilities and critical values calculated for 20 observations
Included observations: 15 after adjustments
Warning: Probabilities and critical values calculated for 20 observations and may not be accurate for a sample size of 12
Variable Coefficient Std. Error t-Statistic Prob.
ACTUALMIN(-1) -1.311703 0.351362 -3.733190 0.0039
D(ACTUALMIN(-1)) 0.220681 0.260317 0.847738 0.4164 ACTUALMAX(-1) -0.857119 0.262362 -3.266925 0.0067
Augmented Dickey-Fuller Test Equation Dependent Variable: D(EMPLOYMENT)
C 5.967986 1.633475 3.653552 0.0044 C 6.095493 2.007652 3.036131 0.0103
Dependent Variable: D(GDP) Method: Least Squares
@TREND("2002") -0.256669 0.097200 -2.640619 0.0247 @TREND("2002") -0.217547 0.131919 -1.649101 0.1250
Method: Least Squares Date: 04/27/19 Time: 20:40
Date: 04/26/19 Time: 22:18 Sample (adjusted): 2006 2017
R-squared 0.643216 Mean dependent var 0.057143 R-squared 0.481712 Mean dependent var 0.006667
Sample (adjusted): 2005 2017 Included observations: 12 after adjustments
Adjusted R-squared 0.536181 S.D. dependent var 1.799450 Adjusted R-squared 0.395331 S.D. dependent var 2.705673
Included observations: 13 after adjustments
S.E. of regression 1.225503 Akaike info criterion 3.479536 S.E. of regression 2.103945 Akaike info criterion 4.502362
Sum squared resid 15.01857 Schwarz criterion 3.662123 Sum squared resid 53.11900 Schwarz criterion 4.643972
Log likelihood -20.35675 Hannan-Quinn criter. 3.462634 Log likelihood -30.76771 Hannan-Quinn criter. 4.500853
EMPLOYMENT(-1) 0.662510 0.586396 1.129801 0.3017
F-statistic 6.009387 Durbin-Watson stat 2.372400 F-statistic 5.576573 Durbin-Watson stat 2.181978
GDP(-1) -0.355588 0.391935 -0.907263 0.3908 D(EMPLOYMENT(-1)) -0.537822 0.824603 -0.652219 0.5384
Prob(F-statistic) 0.013111 Prob(F-statistic) 0.019383
D(GDP(-1)) -0.367565 0.449597 -0.817543 0.4373 D(EMPLOYMENT(-2)) -0.063175 0.769811 -0.082066 0.9373
D(GDP(-2)) 0.227401 0.364874 0.623233 0.5505 D(EMPLOYMENT(-3)) 0.891937 0.664606 1.342053 0.2281
C 5.121955 5.988362 0.855318 0.4173 C -25.48795 23.13538 -1.101687 0.3128
@TREND("2002") -0.151736 0.136448 -1.112045 0.2984 @TREND("2002") 0.308396 0.320964 0.960841 0.3737
R-squared 0.525269 Mean dependent var -0.384615 R-squared 0.734880 Mean dependent var -0.916667
Appendix Figure 2. Unit Root Result of all Independent and Dependent Variables at First
Difference
Null Hypothesis: D(ACTUALMIN) has a unit root Null Hypothesis: D(ACTUALMAX) has a unit root
Exogenous: Constant, Linear Trend Exogenous: Constant, Linear Trend
Lag Length: 1 (Automatic - based on SIC, maxlag=3) Lag Length: 1 (Automatic - based on SIC, maxlag=3)
t-Statistic Prob.* t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -4.576614 0.0160 Augmented Dickey-Fuller test statistic -4.583688 0.0158
Test critical values: 1% level -4.886426 Test critical values: 1% level -4.886426
5% level -3.828975 5% level -3.828975
10% level -3.362984 10% level -3.362984
*MacKinnon (1996) one-sided p-values. *MacKinnon (1996) one-sided p-values.

Warning: Probabilities and critical values calculated for 20 observations Warning: Probabilities and critical values calculated for 20 observations
and may not be accurate for a sample size of 13 and may not be accurate for a sample size of 13
Augmented Dickey-Fuller Test Equation Augmented Dickey-Fuller Test Equation

Dependent Variable: D(ACTUALMIN,2) Dependent Variable: D(ACTUALMAX,2)
Method: Least Squares Method: Least Squares
Date: 04/26/19 Time: 19:07 Date: 04/26/19 Time: 19:07
Sample (adjusted): 2005 2017 Sample (adjusted): 2005 2017
Included observations: 13 after adjustments Included observations: 13 after adjustments
Variable Coefficient Std. Error t-Statistic Prob. Variable Coefficient Std. Error t-Statistic Prob.
D(ACTUALMIN(-1)) -2.413146 0.527278 -4.576614 0.0013 D(ACTUALMAX(-1)) -2.121054 0.462740 -4.583688 0.0013
D(ACTUALMIN(-1),2) 0.691143 0.307494 2.247663 0.0512 D(ACTUALMAX(-1),2) 0.516168 0.270042 1.911435 0.0883
C 1.408439 1.259061 1.118643 0.2923 C 1.504302 1.855997 0.810509 0.4386
@TREND("2002") -0.174416 0.133766 -1.303883 0.2246 @TREND("2002") -0.202918 0.194014 -1.045894 0.3229
R-squared 0.788480 Mean dependent var 0.061538 R-squared 0.803972 Mean dependent var -0.261538
Null Hypothesis: D(DGDP) has a unit root

Exogenous: Constant, Linear Trend Null Hypothesis: D(DEMPLOYMENT) has a unit root
t-Statistic Prob.*
t-Statistic Prob.*
Test critical values: 1% level -5.295384 Augmented Dickey-Fuller test statistic -0.443572 0.9666
5% level -4.008157 Test critical values: 1% level -5.124875
5% level -3.933364
10% level -3.460791
10% level -3.420030
Warning: Probabilities and critical values calculated for 20 observations

Dependent Variable: D(DGDP,2)
Dependent Variable: D(DEMPLOYMENT,2)
Method: Least Squares
Method: Least Squares
D(DGDP(-1)) -3.244530 0.708321 -4.580590 0.0102 D(DEMPLOYMENT(-1)) -0.592391 1.335501 -0.443572 0.6729
D(DGDP(-1),2) 1.094413 0.577461 1.895215 0.1310D(DEMPLOYMENT(-1),2) -0.816176 0.956422 -0.853364 0.4262
D(DGDP(-2),2) 0.940256 0.370632 2.536901 0.0642D(DEMPLOYMENT(-2),2) -0.819373 0.481125 -1.703035 0.1395
D(DGDP(-3),2) 0.526759 0.170866 3.082874 0.0368 C 0.395780 0.568381 0.696329 0.5123
C -0.523225 0.311637 -1.678954 0.1685 @TREND("2002") -0.065217 0.059658 -1.093197 0.3162
@TREND("2002") 0.036407 0.028734 1.267054 0.2739
R-squared 0.945428 Mean dependent var 0.000000
R-squared 0.991651 Mean dependent var 0.100000Adjusted R-squared 0.909047 S.D. dependent var 1.732051
Adjusted R-squared 0.981215 S.D. dependent var 1.791957S.E. of regression 0.522358 Akaike info criterion 1.842029
S.E. of regression 0.245600 Akaike info criterion 0.313481Sum squared resid 1.637148 Schwarz criterion 2.022890
Sum squared resid 0.241277 Schwarz criterion 0.495033Log likelihood -5.131157 Hannan-Quinn criter. 1.728021
Log likelihood 4.432593 Hannan-Quinn criter. 0.114320F-statistic 25.98682 Durbin-Watson stat 1.719452
F-statistic 95.02356 Durbin-Watson stat 2.801805Prob(F-statistic) 0.000623
Prob(F-statistic) 0.000302
Appendix Figure 3. Unit Root Result of all Independent and Dependent Variables at
Second Difference
Null Hypothesis: D(DACTUALMAX,2) has a unit root Null Hypothesis: D(DACTUALMIN,2) has a unit root
Exogenous: Constant, Linear Trend Exogenous: Constant, Linear Trend
Lag Length: 2 (Automatic - based on SIC, maxlag=2) Lag Length: 2 (Automatic - based on SIC, maxlag=2)
t-Statistic Prob.* t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -5.788992 0.0075 Augmented Dickey-Fuller test statistic -10.90985 0.0001
Test critical values: 1% level -5.521860 Test critical values: 1% level -5.521860
5% level -4.107833 5% level -4.107833
10% level -3.515047 10% level -3.515047
*MacKinnon (1996) one-sided p-values. *MacKinnon (1996) one-sided p-values.

Warning: Probabilities and critical values calculated for 20 observations Warning: Probabilities and critical values calculated for 20 observations
and may not be accurate for a sample size of 9 and may not be accurate for a sample size of 9
Augmented Dickey-Fuller Test Equation Augmented Dickey-Fuller Test Equation

Dependent Variable: D(DACTUALMAX,3) Dependent Variable: D(DACTUALMIN,3)
D(DACTUALMAX(-1),2) -4.513596 0.779686 -5.788992 0.0044 D(DACTUALMIN(-1),2) -5.306967 0.486438 -10.90985 0.0004
D(DACTUALMAX(-1),3) 1.942762 0.572351 3.394354 0.0274 D(DACTUALMIN(-1),3) 2.404849 0.344386 6.982993 0.0022
D(DACTUALMAX(-2),3) 0.551835 0.246940 2.234694 0.0891 D(DACTUALMIN(-2),3) 0.707362 0.149783 4.722571 0.0092
C -9.346331 9.854252 -0.948457 0.3966 C -2.851335 2.587877 -1.101805 0.3324
@TREND("2002") 0.771874 0.871299 0.885889 0.4257 @TREND("2002") 0.266988 0.228458 1.168651 0.3074
Null Hypothesis: D(DGDP,2) has a unit root

Exogenous: Constant, Linear Trend Null Hypothesis: D(DEMPLOYMENT,2) has a unit root
t-Statistic Prob.*
t-Statistic Prob.*
Test critical values: 1% level -5.295384
Test critical values: 1% level -5.521860
5% level -4.008157
5% level -4.107833
10% level -3.460791
10% level -3.515047

Dependent Variable: D(DGDP,3) Dependent Variable: D(DEMPLOYMENT,3)
D(DGDP(-1),2) -3.439947 0.549121 -6.264458 0.0008D(DEMPLOYMENT(-1),2) -5.603752 1.294480 -4.328958 0.0124

D(DGDP(-1),3) 0.761375 0.283237 2.688118 0.0361D(DEMPLOYMENT(-1),3) 2.663391 0.914130 2.913581 0.0435
C -1.279077 1.083990 -1.179971 0.2827D(DEMPLOYMENT(-2),3) 0.719643 0.410671 1.752356 0.1546
@TREND("2002") 0.108196 0.099339 1.089157 0.3179 C 0.826864 1.022360 0.808780 0.4640
@TREND("2002") -0.083109 0.091591 -0.907393 0.4155
R-squared 0.988026 Mean dependent var 0.700000
Adjusted R-squared 0.982040 S.D. dependent var 6.650814R-squared 0.994300 Mean dependent var -0.555556
S.E. of regression 0.891317 Akaike info criterion 2.896940Adjusted R-squared 0.988600 S.D. dependent var 6.166667
Sum squared resid 4.766672 Schwarz criterion 3.017974S.E. of regression 0.658428 Akaike info criterion 2.302259
Log likelihood -10.48470 Hannan-Quinn criter. 2.764166Sum squared resid 1.734112 Schwarz criterion 2.411828
F-statistic 165.0348 Durbin-Watson stat 1.354275Log likelihood -5.360166 Hannan-Quinn criter. 2.065809
Prob(F-statistic) 0.000004 F-statistic 174.4340 Durbin-Watson stat 2.394247
Prob(F-statistic) 0.000097
Appendix Figure 4. Regression Result of all Dependent Variables
Dependent Variable: DGDP Dependent Variable: DGDP
C -0.358504 0.137391 -2.609368 0.0228 C -0.347480 0.127285 -2.729946 0.0183

DACTUALMAX 0.012700 0.030800 0.412324 0.6874 DACTUALMIN -0.067638 0.045517 -1.486004 0.1631
Adjusted R-squared -0.068200 S.D. dependent var 0.497245 Adjusted R-squared 0.085036 S.D. dependent var 0.497245
Dependent Variable: DEMPLOYMENT Dependent Variable: DEMPLOYMENT

C -0.153022 0.234185 -0.653426 0.5258 C -0.165864 0.230235 -0.720414 0.4851

DACTUALMAX 0.094876 0.052499 1.807174 0.0959 DACTUALMIN 0.161050 0.082332 1.956107 0.0741
Appendix Figure 5. Durbin Watson Result of all Independent and Dependent Variables
Breusch-Godfrey Serial Correlation LM Test: Breusch-Godfrey Serial Correlation LM Test:
Null hypothesis: No serial correlation at up to 1 lag Null hypothesis: No serial correlation at up to 1 lag
F-statistic 7.009532 Prob. F(1,11) 0.0227 F-statistic 3.578423 Prob. F(1,11) 0.0851
Obs*R-squared 5.448972 Prob. Chi-Square(1) 0.0196 Obs*R-squared 3.436443 Prob. Chi-Square(1) 0.0638
Test Equation: Test Equation:

Dependent Variable: RESID Dependent Variable: RESID
Sample: 2004 2017 Sample: 2004 2017
Included observations: 14 Included observations: 14
Presample missing value lagged residuals set to zero. Presample missing value lagged residuals set to zero.
C -0.015511 0.112302 -0.138119 0.8926 C -0.018097 0.115877 -0.156175 0.8787

DACTUALMAX -0.003366 0.025174 -0.133702 0.8961 DACTUALMIN 0.013000 0.041864 0.310541 0.7620
RESID(-1) -0.637886 0.240934 -2.647552 0.0227 RESID(-1) -0.522168 0.276035 -1.891672 0.0851
R-squared 0.389212 Mean dependent var -2.38E-17 R-squared 0.245460 Mean dependent var 7.93E-18
Breusch-Godfrey Serial Correlation LM Test: Breusch-Godfrey Serial Correlation LM Test:

Null hypothesis: No serial correlation at up to 1 lag Null hypothesis: No serial correlation at up to 1 lag
F-statistic 2.585516 Prob. F(1,11) 0.1361 F-statistic 5.734788 Prob. F(1,11) 0.0356
Obs*R-squared 2.664398 Prob. Chi-Square(1) 0.1026 Obs*R-squared 4.797613 Prob. Chi-Square(1) 0.0285
Test Equation: Test Equation:

Dependent Variable: RESID Dependent Variable: RESID
Sample: 2004 2017 Sample: 2004 2017
Presample missing value lagged residuals set to zero. Presample missing value lagged residuals set to zero.
C 3.67E-05 0.220095 0.000167 0.9999 C 0.026322 0.195272 0.134798 0.8952

DACTUALMAX -0.023765 0.051507 -0.461395 0.6535 DACTUALMIN -0.166284 0.098398 -1.689910 0.1192
RESID(-1) -0.455559 0.283316 -1.607954 0.1361 RESID(-1) -0.826298 0.345047 -2.394742 0.0356
R-squared 0.190314 Mean dependent var 3.17E-17 R-squared 0.342687 Mean dependent var 3.12E-17
Appendix Figure 6. Ramsey Reset Result of all Independent and Dependent Variables
Ramsey RESET Test Ramsey RESET Test
Equation: UNTITLED Equation: UNTITLED
Specification: DGDP C DACTUALMAX Specification: DGDP C DACTUALMIN
Omitted Variables: Squares of fitted values Omitted Variables: Squares of fitted values
Value df Probability Value df Probability

t-statistic 1.203472 11 0.2541 t-statistic 0.417783 11 0.6841
F-statistic 1.448344 (1, 11) 0.2541 F-statistic 0.174542 (1, 11) 0.6841
Likelihood ratio 1.731693 1 0.1882 Likelihood ratio 0.220401 1 0.6387
F-test summary: F-test summary:

Sum of Sq. df Mean Squares Sum of Sq. df Mean Squares
Test SSR 0.368752 1 0.368752 Test SSR 0.042403 1 0.042403
Restricted SSR 3.169383 12 0.264115 Restricted SSR 2.714729 12 0.226227
Unrestricted SSR 2.800631 11 0.254603 Unrestricted SSR 2.672326 11 0.242939
LR test summary: LR test summary:

Value Value
Restricted LogL -9.466497 Restricted LogL -8.382582
Unrestricted LogL -8.600651 Unrestricted LogL -8.272382
Unrestricted Test Equation: Unrestricted Test Equation:

Dependent Variable: DGDP Dependent Variable: DGDP
Sample: 2004 2017 Sample: 2004 2017
C -4.559413 3.493265 -1.305201 0.2185 C -0.102364 0.601352 -0.170223 0.8679

DACTUALMAX 0.304652 0.244469 1.246177 0.2386 DACTUALMIN -0.001875 0.164324 -0.011413 0.9911
FITTED^2 31.88806 26.49672 1.203472 0.2541 FITTED^2 -1.559182 3.732042 -0.417783 0.6841
Adjusted R-squared -0.029727 S.D. dependent var 0.497245 Adjusted R-squared 0.017448 S.D. dependent var 0.497245
Ramsey RESET Test Ramsey RESET Test
Equation: UNTITLED Equation: UNTITLED
Specification: DEMPLOYMENT C DACTUALMIN Specification: DEMPLOYMENT C DACTUALMAX
Omitted Variables: Squares of fitted values Omitted Variables: Squares of fitted values
Value df Probability Value df Probability

t-statistic 0.191101 11 0.8519 t-statistic 0.175615 11 0.8638
F-statistic 0.036520 (1, 11) 0.8519 F-statistic 0.030841 (1, 11) 0.8638
Likelihood ratio 0.046403 1 0.8294 Likelihood ratio 0.039197 1 0.8431
F-test summary: F-test summary:

Sum of Sq. df Mean Squares Sum of Sq. df Mean Squares
Test SSR 0.029391 1 0.029391 Test SSR 0.025745 1 0.025745
Restricted SSR 8.882111 12 0.740176 Restricted SSR 9.208211 12 0.767351
Unrestricted SSR 8.852720 11 0.804793 Unrestricted SSR 9.182466 11 0.834770
LR test summary: LR test summary:

Value Value
Restricted LogL -16.68001 Restricted LogL -16.93241
Unrestricted LogL -16.65681 Unrestricted LogL -16.91281
Unrestricted Test Equation: Unrestricted Test Equation:

Dependent Variable: DEMPLOYMENT Dependent Variable: DEMPLOYMENT
Sample: 2004 2017 Sample: 2004 2017
C -0.219499 0.369332 -0.594313 0.5643 C -0.183642 0.300101 -0.611933 0.5530

DACTUALMIN 0.179550 0.129390 1.387665 0.1927 DACTUALMAX 0.099679 0.061207 1.628551 0.1317
FITTED^2 0.228965 1.198133 0.191101 0.8519 FITTED^2 0.150967 0.859648 0.175615 0.8638

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INFLUENCE OF INFLATION TARGETING ON GROWTH AND EMPLOYMENT IN

AGRICULTURAL SECTOR IN THE PHILIPPINES

has one brother whose name is Frederic P.Valerio Jr.

She finished primary education in 2011 at Langkaan Elementary School,

Academy of Dasmariñas Inc. and graduated in 2015.

pursued Bachelor of Science in Economics major in Business Economics. She obtained

the degree in June 2019.

she is residing at 172 Langkaan I, Dasmariñas City, Cavite.

She finished her elementary education at Langkaan Elementary School in the

Economics major in Business Economics at Cavite State University.

the last portion of the study;

in checking the technical aspect of the study;

guidance and insightful comments to improve the study;

encouragement which led to the completion of the study;

knowledge and information;

Cabrera, Julienne Escopete, Lhymhel Inguanzo, Elijah Herero, Mathews Ed Ramos,

Their relatives, for the trust and moral support;

days colorful and wonderful.

To all of them, this piece of work is wholeheartedly dedicated.

MARAGAT, JEANIVHIC P., and VALERIO, ERICKA P., “Influence of Inflation

Both policymakers and economists increasingly accept that main medium-to

essential objective of financial strategy.

employment in agricultural sector in the Philippines; to describe the pattern of inflation

significant influence of inflation on growth and employment in agricultural sector.

(PSA), BangkoSentralngPilipinas (BSP) and Department of Agriculture (DAR). Since the

Regression was used.

experience by the country.

in agricultural sector, the result of regression showed that there is no influence in

specification error using Ramsey RESET Test.

BIOGRAPHICAL DATA........................................................................................ iii

LIST OF APPENDIX TABLES............................................................................... xi

LIST OF APPENDIX FIGURES............................................................................. xii

LIST OF APPENDICES......................................................................................... xiii

Statement of the Problem............................................................................ 4

Objective of the Study.................................................................................. 4

Theoretical Framework of the Study............................................................ 5

Conceptual Framework of the Study............................................................ 6

Significance of the Study.............................................................................. 7

Scope and Limitation of the Study............................................................... 7

REVIEW OF RELATED LITERATURE................................................................. 9

Statistical Treatment of Data........................................................................ 22

RESULTS AND DISCUSSION..............................................................................

Pattern of Inflation rate, GDP and employment in agricultural

Significant difference between actual and target inflation rate..................... 32

Significant influence of inflation targeting on growth and

SUMMARY, CONSLUSION AND RECOMMENDATION..................................... 83

Philippines actual and target inflation rate in minimum

T-test result comparing actual and target inflation rate

T-test result comparing actual and target inflation rate

The result of Augmnted Dickey Fuller test of all variables

The result of Augmented Dickey Fuller test of all variables

The result of Augmented Dickey Fuller test of all variables

The regression result using ordinary least square regression

The regression result using ordinary least square regression

9 Durbin Watson Statistics result of Employment and GDP........................ 42

10 Ramsey Reset Result of Actual Maximum Inflation.................................. 43

11 Ramsey Reset Result of Actual Minimum Inflation................................... 43

Schematic diagram illustrating the influence of inflation

2 Philippine Inflation Rate, 2002-2017......................................................... 30

3 Philippine Employment and Gross Domestic Product.............................. 33

The graph of the independent and dependent variables at

The graph of the independent and dependent variables at