CONTENTS
HOME
OUR WORK - Managing Risks, Sustaining Growth
A MORE CHALLENGING POLICY ENVIRONMENT
MONETARY POLICY - PROVIDING AN ANCHOR FOR PRICE STABILITY OVER THE MEDIUM-TERM
MANAGING THE CHALLENGES OF INCREASED GLOBAL FINANCIAL UNCERTAINTY
A SOUND AND PROGRESSIVE FINANCIAL CENTRE
CURRENCY
 
MONETARY POLICY
- PROVIDING AN ANCHOR FOR PRICE STABILITY OVER THE MEDIUM-TERM
15
 
Enhancing Monetary Policy Research 16
 
Box Story 1 - Asia Decoupling? 18
 

Enhancing Monetary Policy Research

To support the formulation and implementation of monetary policy at MAS and to deepen our understanding of the growth and inflation dynamics in Singapore, we have undertaken a number of research projects in collaboration with academics. Here we highlight two recently completed studies.

The October 2007 Macroeconomic Review featured a comparison of two differently constructed macroeconometric models of the Singapore economy, namely the MAS' own Monetary Model of Singapore (MMS) and the National University of Singapore's Econometric Studies Unit Model (ESU01). This was the outcome of collaboration with Tilak Abeysinghe from the Department of Economics, National University of Singapore, and Choy Keen Meng from the Division of Economics, Nanyang Technological University, which allowed MAS economists to gain a deeper understanding of the characteristics of each model. It showed, in particular, that MMS places a greater emphasis on the production side of the economy whereas ESU01 stresses the trade linkages through which an external shock impacts the rest of the economy. Both models, however, provide complementary perspectives on the behaviour of the Singapore economy and offer a similar range of plausible multiplier estimates that are useful for forecasting and policymaking purposes.

MAS has also developed a quarterly structural vector autoregressive (SVAR) model for the Singapore economy in collaboration with Anthony Tay of Singapore Management University, which was featured in the April 2008 Macroeconomic Review. This model captures the principal interactions within the economy as well as the transmission mechanism of monetary policy in Singapore. The model has helped MAS economists to assess the impact on asset prices in Singapore arising from a shock to the foreign interest rate and foreign demand. The results show that, on average, the effect on asset prices arising from a 1 percentage point cut in the foreign interest rate is less than half of the income effect from a positive 1% foreign demand shock. These findings lend support to the view that asset prices in Singapore are largely driven by income effects rather than price (or cost of funds) effects.

In addition, under MAS' Eminent Visitor Programme, Paul Romer (Hoover Institution) visited Singapore in January 2008. Romer shared with MAS officers his ideas and expertise in development economics - New Growth Theory in particular - as well as his work with the Growth Commission. While in Singapore, Romer also gave a public lecture on the theories of economic development, and wrote a Special Feature for the April 2008 issue of the Macroeconomic Review on rival versus non-rival goods and their impact on economic growth and development.

In the second half of this year, Barry Eichengreen and Andrew Rose (both from the University of California, Berkeley) will be visiting MAS. Eichengreen is a well-known economist who is highly influential both in academia and in policy circles. He has published widely on the history and operation of the international monetary and financial system. Rose's areas of expertise are in international trade, finance and macroeconomics, and he has written extensively on topics such as monetary unions, currency crises, exchange rate regimes, and more recently, on issues connected with financial markets.

From 25 to 27 June 2008, MAS and the Centre for Central Banking Studies (CCBS) at the Bank of England jointly conducted a course on "Exchange Rates & Capital Flows: Issues and Challenges for Asia". This course was attended by central bank officials from over 10 countries in the Asia Pacific region. It provided participants with greater insight into exchange rate economics as well as specific issues relating to capital flows from an Asian perspective. This is the third time since 2004 that MAS has collaborated with the CCBS to jointly conduct courses in economics and finance for central bankers from the Asia Pacific region. The instructors from the CCBS, Ibrahim Stevens and Ole Rummel, were also able to spend some time with MAS economists to exchange views and share their expertise on the latest econometric approaches in modeling the monetary policy transmission mechanism.