has over the years gradually shifted towards adopting
a more open and communicative approach in monetary
policy. We are devoting greater attention to communicating
our objectives more clearly and frequently to the
market, the media and the public. We are also revealing
more information about our methodology and views,
including information about our forecasting methods,
the internal models and the impact of potential external
shocks and policy changes. In July 2005 for example,
we released a Staff Paper1, which documented the
evolution of our macromodelling tools and techniques
for economic forecasting and policy analysis since
MAS’ continued efforts to increase monetary
policy transparency and communication appear to
have paid off in terms of the alignment of market
expectations to policy decisions. A recent study
conducted by MAS staff found that market participants
are better able to understand and anticipate monetary
policy decisions and respond more efficiently to
economic data and news, following MAS’ monetary
policy transparency initiatives (See Box 16).
On the macromodelling front, the Monetary Model
of Singapore (MMS) was reviewed and enhanced to
strengthen MAS’ forecasting, policy analysis
and decision-making capabilities. The MMS now includes
the specification of a satellite model for foreign
input prices, an exogenous variable in the model.
We are also developing a demographic extension
to the model. In addition, the MMS was updated
early this year to incorporate the latest input-output
data and the rebased national accounts.
1 The paper benefited tremendously from the contributions
of our consultant, Chris Murphy (Ecotech).