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Monetary Policy in East Asia: The Case of Singapore


  • Bennett T. McCallum

    (Carnegie Mellon University (E-mail:


The Monetary Authority of Singapore conducts policy by adjusting the Singapore dollar fs effective exchange rate so as to achieve macroeconomic goals for the economy fs 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 nation fs fiscal authority is an anachronism.

Suggested Citation

  • 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.
  • Handle: RePEc:ime:imemes:v:25:y:2007:i:s1:p:13-28

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    References listed on IDEAS

    1. Bennett T. McCallum, 2006. "A Monetary Policy Rule for Automatic Prevention of a Liquidity Trap," NBER Chapters,in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 9-42 National Bureau of Economic Research, Inc.
    2. Robert N McCauley, 2002. "Setting Monetary Policy in East Asia: Goals, Developments and Institutions," Occasional Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number occ33.
    3. Michael B. Devereux, 2003. "A Tale of Two Currencies: the Asian Crisis and the Exchange Rate Regimes of Hong Kong and Singapore," Review of International Economics, Wiley Blackwell, vol. 11(1), pages 38-54, February.
    4. Eric Parrado, 2004. "Singapore's Unique Monetary Policy; How Does it Work?," IMF Working Papers 04/10, International Monetary Fund.
    5. Ramkishen S. Rajan & Reza Siregar, 2002. "Choice of Exchange Rate Regime: Currency Board (Hong Kong) or Monitoring Band (Singapore)?," Australian Economic Papers, Wiley Blackwell, vol. 41(4), pages 538-556, December.
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    Cited by:

    1. Shinji Takagi & Vitalie Ciubotaru, 2013. "Putting the Pieces Together: The Moldovan Exchange Rate Policy Puzzle," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 5(1).
    2. repec:eee:pacfin:v:46:y:2017:i:pb:p:337-354 is not listed on IDEAS
    3. Bennett T. McCallum, 2014. "Monetary Policy in a Very Open Economy: Some Major Analytical Issues," Pacific Economic Review, Wiley Blackwell, vol. 19(1), pages 27-60, February.
    4. Kazumasa Iwata, 2007. "Housing and monetary policy in Japan," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 445-461.
    5. Teo, Wing Leong, 2009. "Can exchange rate rules be better than interest rate rules?," Japan and the World Economy, Elsevier, vol. 21(3), pages 301-311, August.
    6. repec:eee:jimfin:v:81:y:2018:i:c:p:159-184 is not listed on IDEAS

    More about this item


    Exchange rate; Inflation targeting; Instrument variable; Target variable; Open economy; Monetary policy;

    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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