Modelling the interactions between climate change and the macrofinancial system in the Philippines: a scenario analysis

Principal Investigator

• Yannis Dafermos (SOAS University of London)

Co-investigators

• Dennis M. Bautista (Bangko Sentral ng Pilipinas)
• Shirra Jazel L. De Guia  (Bangko Sentral ng Pilipinas)
• Adam George (SOAS University of London)

Researchers

• Clarisa Joy A. Flaminiano (Bangko Sentral ng Pilipinas)
• Jacqueline Margaux G. Herbo (Bangko Sentral ng Pilipinas)
• Sanjeev A. Parmanand (Bangko Sentral ng Pilipinas)
• Reynalyn G. Punzalan-Wong (Bangko Sentral ng Pilipinas)
• Rossvern R. Reyes (Bangko Sentral ng Pilipinas)

Duration

• 2025-2026

The Philippine economy is experiencing growing climate-related risks. These risks stem both from the exposure to climate-related  phenomena (such as typhoons and the sea level rise) and the transition to a net zero economy at the national and the global level. Climate-related developments can affect inflation, GDP, productivity, employment, debt defaults, credit provision and other macrofinancial factors with significant implications for the stability of the Philippine financial system. 

Although these implications are particularly important for the Bangko Sentral ng Pilipinas (BSP), so far there has been a limited understanding of the macrofinancial effects of climate change on the Philippine economy from a quantitative perspective. This acts as a barrier to the appropriate monitoring of the Philippine economy in the climate crisis era as well as to the assessment of options for the climate adjustment of BSP’s monetary and financial policy tools. 

This project develops an ecological macroeconomic model for the Philippines that allows BSP to analyse the interactions between climate change and the country’s macrofinancial system using scenario analysis. The model relies on the methodological principles of the DEFINE-UK model which uses stock-flow consistent and macroeconometric techniques to capture the dynamics of macroeconomic, financial and environmental variables. Special attention is paid to ensuring that the model successfully incorporates the key features of the Philippine  economy and that the climate policy scenarios reflect the policy and institutional context of the country.

Header image credit: John Hernandez via Unsplash.