Monetary Policy in East Asia: the Case of Singapore
AbstractThe 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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Bibliographic InfoPaper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 07-E-010.
Date of creation: Aug 2007
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exchange rate; inflation targeting; instrument variable; target variable; open economy; monetary policy;
Other versions of this item:
- Bennett T. McCallum, 2007. "Monetary Policy in East Asia: The Case of Singapore," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(S1), pages 13-28, December.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-02 (All new papers)
- NEP-CBA-2007-09-02 (Central Banking)
- NEP-MAC-2007-09-02 (Macroeconomics)
- NEP-MON-2007-09-02 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bennett T. McCallum, 2006.
"A Monetary Policy Rule for Automatic Prevention of a Liquidity Trap,"
in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 9-42
National Bureau of Economic Research, Inc.
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"Setting Monetary Policy in East Asia: Goals, Developments and Institutions,"
South East Asian Central Banks (SEACEN) Research and Training Centre, number occ33, June.
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- Kazumasa Iwata, 2007. "Housing and monetary policy in Japan," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 445-461.
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