Monetary Policy in East Asia: The Case of Singapore
The Monetary Authority of Singapore 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.
Volume (Year): 25 (2007)
Issue (Month): S1 (December)
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- Robert N McCauley, 2002.
"Setting Monetary Policy in East Asia: Goals, Developments and Institutions,"
South East Asian Central Banks (SEACEN) Research and Training Centre, number occ33.
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"A Monetary Policy Rule for Automatic Prevention of a Liquidity Trap,"
NBER Working Papers
11056, National Bureau of Economic Research, Inc.
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- 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.
- Eric Parrado, 2004. "Singapore's Unique Monetary Policy; How Does it Work?," IMF Working Papers 04/10, International Monetary Fund.
- 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.
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