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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 Statements  
79
 
  PUSHING THE FRONTIER OF MONETARY POLICY
RESEARCH AND ANALYSIS

Box 16 Assessing Market Response to MAS’
Monetary Policy Statements
 

In the October 2005 issue of the Macroeconomic Review, the Economic Policy Department published a study that examined the market response to MAS’ monetary policy actions. The study found that market participants were better able to understand and anticipate monetary policy following MAS’ increased transparency initiatives.

In particular, the study examines the characteristics of the market response of the S$NEER around the time of policy actions or announcements in the semi-annual MPS. The response of the SGD exchange rate to announced changes in monetary policy is used to provide a measure of the extent to which the market was surprised by MAS’ policy actions. In other words, the magnitude of the exchange rate movements contains information on the predictability of policy and the ability of investors to read future policy intent from current information. With increased transparency, one would expect that over time, financial market participants would be in a better position to anticipate policy moves. This in turn implies that the market response would be more muted around the period of the policy announcement and implementation.

Chart 10 plots the average absolute daily change in the S$NEER for three sample periods over a two-day window. The first sample period from 1993 to 2000 corresponds to the regime when no announcements on policy changes were made. The second period covering 2001 captures the period where unscheduled MPS announcements were made. The third sample period, from July 2002, captures scheduled MPS announcements and the advance release of the announcement date and time. Indeed, market responses have become more muted with increased disclosure and transparency of MAS’ monetary policy, as reflected in the declining average market movements around policy dates.