ECONOMIC DEVELOPMENTS
AND MONETARY POLICY
     
Content Page
 
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US: Vibrant Pace . Europe: Mixed
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Box 15 – Debunking the Deflation Myth in Singapore . International Financial Markets: Broad Recovery Amid Uncertainty
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Box 16 – Exchange Rate and Macroeconomic Volatility . Monetary Policy in an Increasingly Volatile Environment
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Recent Policy Research and Analysis Against the Backdrop of More Frequent Shocks . Box 17 – Creating an Electronics Leading Index
 
Box 15
DEBUNKING THE DEFLATION MYTH IN SINGAPORE
 
With inflation in a number of countries falling into negative territory, there were concerns that Singapore may also be caught in a deflationary cycle. Against this backdrop, MAS undertook a study to examine consumer price movements in Singapore over the past two decades1.

There were three occasions when consumer prices declined over a fairly extended period of time, coinciding with the major recessions in 1986-87, 1998-99, and 2001-02. The study concluded that the periods of price declines were largely cyclical in nature and reflected efficient market adjustments to a fall in aggregate demand, thus preventing an even more severe adjustment in real economic activity. These price declines cannot be characterised as sustained deflation. The most recent episode in 2001-02 also reflected oilrelated supply shocks and policy induced relief measures, suggesting the role of favourable supply-side developments.

The study identified ongoing structural changes in the economy influencing prices as well. These include the benefits of globalisation, liberalisation and productivity improvements in the economy that have offered consumers a greater quality and variety of goods at reduced prices. As the economy recovers, the cyclical drag on prices will diminish, even as the ongoing structural developments continue to play a role in the longer-term evolution of prices.