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On Singaporean Dollar and Purchasing Power Parity


  • Venus Khim-Sen Liew

    (Universiti Malaysia Sabah)

  • Ahmad Zubaidi Baharumshah

    (Universiti Putra Malaysia)

  • Kian-Ping Lim

    (Universiti Malaysia Sabah)


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 0411002, EconWPA.
  • Handle: RePEc:wpa:wuwpif:0411002
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    References listed on IDEAS

    1. Devereux, Michael B. & Lane, Philip R., 2003. "Understanding bilateral exchange rate volatility," Journal of International Economics, Elsevier, vol. 60(1), pages 109-132, May.
    2. Nienke Oomes, 2003. "Network Externalities and Dollarization Hysteresis; The Case of Russia," IMF Working Papers 03/96, International Monetary Fund.
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    4. Gunther Schnabl, 2004. "De jure versus de facto Exchange Rate Stabilization in Central and Eastern Europe," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 59(02), pages 171-190, June.
    5. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
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    9. Paul De Grauwe & Gunther Schnabl, 2004. "Exchange Rate Regimes and Macroeconomic Stability in Central and Eastern Europe," CESifo Working Paper Series 1182, CESifo Group Munich.
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    11. Eric Hillebrand & Gunther Schnabl, 2003. "The Effects of Japanese Foreign Exchange Intervention: GARCH Estimation and Change Point Detection," Departmental Working Papers 2003-09, Department of Economics, Louisiana State University.
    12. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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