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Does Credit Channel Matter in the Conduct of Monetary Policy in Singapore?

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  • Wai-Ching Poon

Abstract

This paper employs the bounds testing approach for cointegration analysis (Pesaran et al., 2001) to examine the impact of interest rate and exchange rate on output, and then uses the estimated weights to construct Monetary Conditions Index (MCI) for Singapore over the quarterly period 1981-2004. Designed to measure the stance of monetary condition, MCI plays an important role for the conduct of monetary policy. Results reveal evidence of a long-run cointegration between the output and its determinants, namely short and long-term interest rate, exchange rate, and claims on the private sector. This has further verified the stability of the Singaporean output demand function. The study has evidently showed that the Monetary Authority of Singapore has responded positively to the MCIs in terms of the monetary policies stance.

Suggested Citation

  • Wai-Ching Poon, 2008. "Does Credit Channel Matter in the Conduct of Monetary Policy in Singapore?," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3), pages 40-50, August.
    • Handle: RePEc:icf:icfjmo:v:06:y:2008:i:3:p:40-50
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    References listed on IDEAS

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    1. Wensheng Peng & Frank Leung, 2005. "A Monetary Conditions Index for Mainland China," Working Papers 0501, Hong Kong Monetary Authority.
    2. Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 631-653.
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    6. Roger Perman, 1991. "Cointegration: An Introduction to the Literature," Journal of Economic Studies, Emerald Group Publishing, vol. 18(3), pages 3-30, September.
    7. Mah, Jai S., 2000. "An empirical examination of the disaggregated import demand of Korea--the case of information technology products," Journal of Asian Economics, Elsevier, vol. 11(2), pages 237-244.
    8. Cheng Hsiao, 1997. "Cointegration and Dynamic Simultaneous Equations Model," Econometrica, Econometric Society, vol. 65(3), pages 647-670, May.
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    10. Grande, Giuseppe, 1997. "Properties of the monetary conditions index," MPRA Paper 23515, University Library of Munich, Germany.
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