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Monetary Policy in East Asia: the Case of Singapore

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Author Info
Bennett T. McCallum (Carnegie Mellon University and National Bureau of Economic Research (E-mail: bmccallum@cmu.edu))

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Abstract

The Monetary Authority of Singapore (MAS) conducts policy by adjusting the Singapore dollarfs effective exchange rate so as to achieve macroeconomic goals for the economyfs inflation rate and output gap. Estimates of a policy rule of the Taylor type, except with exchange rate appreciation serving as the instrument/indicator variable, substantiate this interpretation. That this rule reflects policy that is much like inflation targeting is evidenced by the absence of any significant role for the real exchange rate as a distinct target variable in addition to inflation and the output gap. Simulations with a dynamic model of a small open economy illustrate that this type of rule can be relatively more advantageous in economies that (like Singapore) are extremely open to international trade. The analysis illustrates that monetary policy and exchange-rate policy are two sides of the same coin, which suggests that assignment of exchange-rate management to a nationfs fiscal authority is an anachronism.

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File URL: http://www.imes.boj.or.jp/english/publication/edps/2007/07-E-10.pdf
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Publisher Info
Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 07-E-010.

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Date of creation: Aug 2007
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Handle: RePEc:ime:imedps:07-e-10

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Related research
Keywords: exchange rate inflation targeting instrument variable target variable open economy monetary policy

Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F31 - International Economics - - International Finance - - - Foreign Exchange
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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