Need Singapore Fear Floating? A DSGE-VAR Approach
AbstractThis paper uses a DSGE-VAR model to examine the managed exchange-rate system at work in Singapore and asks if the country has any reason to fear floating the exchange rate with a Taylor rule inflation-targeting mechanism that uses the short term interest rate instead of the exchange rate as the benchmark monetary policy instrument. Our simulation results show that the use of a more flexible exchange rate system will reduce volatility in inflation and investment but consumption volatility will increase. Overall, there are neither signi ficant welfare gains or losses in the regime shift. Given the highly open and trade dependent nature of the Singapore economy where the policy preference is for exchange rate stability, there is no impetus to abandon the present monetary regime.
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Bibliographic InfoPaper provided by Singapore Management University, School of Economics in its series Working Papers with number 29-2010.
Length: 26 pages
Date of creation: Dec 2010
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- 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-2011-09-05 (All new papers)
- NEP-CBA-2011-09-05 (Central Banking)
- NEP-CMP-2011-09-05 (Computational Economics)
- NEP-DGE-2011-09-05 (Dynamic General Equilibrium)
- NEP-MAC-2011-09-05 (Macroeconomics)
- NEP-MON-2011-09-05 (Monetary Economics)
- NEP-SEA-2011-09-05 (South East Asia)
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.:
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