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OUR MISSION
OUR OBJECTIVES
 
ECONOMIC DEVELOPMENTS AND
MONETARY POLICY
D ECONOMIC DEVELOPMENTS AND MONETARY POLICY  
 
The World Economy: Robust Growth on  
the Strenght of the US Economy  
70
 
International Financial Markets: Resilience  
in the Face of Uncertainties
71
 
Singapore Financial System
 
Remains Sound  
74
 
Singapore Economy: Ending on a High Note  
74
 
Monetary Policy Amid Continued Growth  
and Emerging Inflationary Pressures  
77
 
Strengthening the Monetary Policy
 
Formulation Process  
77
 
Pushing the Frontier of Monetary Policy
 
Research and Analysis  
78
 
Box 16 – Assessing Market Response to  
MAS’ Monetary Policy  
79
 
  PUSHING THE FRONTIER OF MONETARY POLICY
RESEARCH AND ANALYSIS
 

As part of our continuing efforts to enhance the understanding of the structure and analytics of the Singapore economy, MAS has carried out a broad range of policy research studies. In particular, in order to better comprehend the monetary transmission mechanism in the economy, MAS completed a study of the various channels of transmission with the help of Assistant Professor Anthony Tay from the Singapore Management University. The study involved the construction of a model utilising Structural Vector Autoregressive and Kalman filtering techniques to analyse the transmission mechanism of monetary policy and potential output gap of Singapore, respectively. Over the past year, MAS also conducted several in-depth studies on the IT and financial sectors, the labour market, and the impact of increases in crude oil prices on retail petrol pump prices.

In addition, MAS issued four Staff Papers and two Macroeconomic Reviews in 2005, These papers and reports allowed us to disseminate our research findings and share the basis for our policy decisions in the MPSs. Two of the Staff Papers were written by visiting academics under the Visiting Scholar programme. Professor Peter Montiel (Williams College) wrote on the macroeconomic reform agenda of developing countries in the 1990s2, and Dr Andrew Feltenstein (IMF Institute) examined the welfare analysis of trade reforms among ASEAN countries3. Professor Bennett McCallum of Carnegie Mellon University also contributed a Staff Paper this year, on the relevance of Singapore’s exchange rate regime for China4.

Going forward, MAS will continue to press ahead with various studies to enhance our understanding of the Singapore economy. These include:

The impact of changing demographics on the Singapore economy, which will involve the construction of a long-term model to project key economic variables such as potential output, total factor productivity and the saving-investment gap under various policy scenarios.
The performance of the domestic financial sector clusters and quantifying the spillovers from such activities using survey returns from the financial institutions.
The evolution of capital markets, and an analysis of the determinants of cross-border capital flows.

In support of greater dialogue on key economic policy issues between academics and policymakers, MAS and the Economic Society of Singapore co-organised the Monetary Policy Forum during the 50th Anniversary Conference of the Singapore Economic Review. The Conference was attended by many eminent academics including Professor Edward Prescott, 2004 Nobel Laureate in Economics, who delivered the keynote address.

2 " Macreoconomic Stability in Developing Countries: How Much is Enough?", MAS staff Paper No. 40,
3 " The Welfare Analysis of a Free Trade Zone: Intermediate Goods and the Asian Tigers", MAS Staff Paper No. 41,
4 " Singapore's Exchange Rate-Centred Monetary Policy Regime and its Relevance for China", MAS Staff Paper No. 43, April 2006