Macroprudential Policies and Financial Stability in a Small and Open Economy: The Case of Singapore

Singapore has successfully harnessed financial globalisation to promote rapid growth and development, but it has concomitantly been highly exposed to the vagaries of the global financial markets, making it susceptible to macro-financial risks. Singapore has proactively utilised macroprudential policies (MaPPs) which are primarily targeted at the property market to manage domestic financial stability on a system-wide basis. This chapter describes the set of property-related MaPPs used by Singapore over the last two decades. It then goes on to examine the extent to which housing price growth in Singapore co-moves with global housing prices and whether MaPPs can insulate the domestic housing market from fluctuations in global financial conditions. The empirical analysis offers strong evidence to suggest that Singapore’s MaPPs as a whole have produced a dampening impact on the growth of the country’s property prices. The results also show that the use of a multiple set of instruments to maintain property market stability may be more effective than relying on a single instrument, possibly due to the fact that there may be multiple sources of disequilibria impacting the market. The chapter discusses some possible lessons from the Singapore experience and highlights ongoing challenges in the conduct of MaPPs.