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A Preliminary Assessment of Drivers of Philippine FX Market Liquidity


This study provides a preliminary analysis of liquidity in the Philippine FX market using the FX market illiquidity indicator proposed by Karnaukh et al. (2015). Using an event-study approach, the impact of specific domestic, regional and global developments and shocks on Philippine FX market liquidity were observed. Meanwhile, using econometric analysis, the fundamental factors affecting FX market liquidity were examined. Results revealed that apart from financial market conditions, demand- and supply-side factors likewise influenced Philippine FX market liquidity. These have important policy implications. First, increased global distress can have important ramifications for Philippine financial markets, making continuous monitoring of financial market conditions essential. Second, the BSP has a significant role in mitigating FX market illiquidity, through the implementation of appropriate regulations and support of financial market deepening. Third, developments in the real economy can have important implications for financial markets.

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