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On Singaporean Dollar and Purchasing Power Parity

Author

Listed:
  • Venus Khim-Sen Liew

    (Universiti Malaysia Sabah)

  • Ahmad Zubaidi Baharumshah

    (Universiti Putra Malaysia)

  • Kian-Ping Lim

    (Universiti Malaysia Sabah)

Abstract

This study re-examines the validity of relationship between Singapore Dollar-US Dollar exchange rate and the relative price using the latest econometric methodologies that accounts for non-linearity. Among others, this study finds Exponential Smooth Transition Autoregressive (ESTAR)- type non-linear mean-reverting adjustment process of the nominal Singapore dollar-US dollar rate towards consumer price index ratio. Unlike previous finding of linear cointegration relationship between nominal Singapore Dollar-US Dollar exchange rate and consumer price index ratio, this study shows that the relationship is in fact non- linear in nature. The major economic implications of our findings includes: (1) Policy makers need to take non-linearity into consideration on their policy decision; (2) Monetary Authority of Singapore (MAS) is able to maintain the macroeconomic equilibrium albeit the authority’s strong dollar policy; and (3) One should keep track on Singapore monetary policy and other innovations in aggregate demand in order to closely monitor the movement of Singapore exchange rate.

Suggested Citation

  • Venus Khim-Sen Liew & Ahmad Zubaidi Baharumshah & Kian-Ping Lim, 2004. "On Singaporean Dollar and Purchasing Power Parity," International Finance 0411001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpif:0411001
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    Keywords

    Exchange rates; Non-linearity; Purchasing Power Parity; Exponential Smooth Transition Autoregressive (ESTAR); Exchange rates; Non-linearity; Purchasing Power Parity; Exponential Smooth Transition Autoregressive (ESTAR); Singapore.;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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