The BSP's Forecasting and Policy Analysis System

Abstract

The Bangko Sentral ng Pilipinas (BSP) subscribes to the Forecasting and Policy Analysis System (FPAS) as the framework for macroeconomic forecasting and analysis in support of monetary policy formulation. FPAS is a standard framework, adopted by many in"ation-targeting central banks, that organizes the generation, consolidation, and analysis of economic information relavant to monetary policy formulation. This paper aims to describe how macroeconomic forecasts and policy simulations are generated to support monetary policy analysis and formulation at the BSP. To this end, this article summarizes the main features of the process involved in generating the baseline forecasts, alternative scenarios, and policy simulations. We highlight the complementary roles played by the BSP’s suite of models and the expert judgement from the sector specialists as well as the importance of forecast communication in the transmission of monetary policy. Finally, we present a systematic evaluation of the forecasting performance of the BSP from 2010 to 2020 together with some of the lessons in forecasting during the COVID-19 pandemic and the recent efforts to improve the BSP’s FPAS.