Annual Report 2001/2002

Deepening the Analytical Foundations of Policy Formulation and Enhancing Transparency to Strengthen Monetary Policy Effectiveness

Last year’s developments highlighted the need to concurrently deepen the analytical foundations of policy formulation and enhance the transparency of the monetary policy process so as to improve on its effectiveness. Against a backdrop of collapsing external demand, MAS faced the challenge of ensuring that monetary policy remained supportive of growth, while continuing to emphasise the medium-term price stability objective. The frequency of the policy and forecasting review was increased last year in line with the rapidly evolving conditions in the economy. In addition, detailed studies were carried out on the exchange rate pass-through relationship, to examine the transmission mechanism by which changes in the nominal effective exchange rate (NEER) translated into inflationary pressures, as well as on wage-price dynamics to better understand the adjustment process in the labour markets, and their role in facilitating the economy’s adjustment to external shocks. Econometric modeling was also carried out to determine the medium- to long-term influences on the real effective exchange rate (REER).

MAS also explicitly recognised the need to assess the overall macroeoconomic stance in the economy and its implications for growth and inflation. This led to the development of the fiscal impulse measure that was used to summarise the fiscal policy stance, as well as the Domestic Liquidity Index, as a measure of overall liquidity conditions, to provide a better assessment of the state of monetary conditions in the economy. The MMS provided MAS with a quantitative assessment of the impact of the overall macroeconomic policy mix - involving both monetary and fiscal policy - on GDP growth. In addition, major developmental work was carried out on the MMS to enhance the fiscal block of equations and strengthen its linkages with the rest of the model. With these improvements, MAS is better able to assess the impact of fiscal measures on the economy, as well as to carry out medium-term simulations on the effects of tax changes on the government budget position.

The effectiveness of MAS’ exchange rate policy has also been strengthened through its efforts to enhance the transparency of the monetary policy process. Towards this end, the Monetary Policy Statement (MPS) has been published on a semi-annual basis since February 2001, following the review of the exchange rate policy. MAS also released the first issue of the Macroeconomic Review in January 2002 in conjunction with the MPS, to provide the public with the economic background and rationale behind its policy decisions. The first issue tracked the impact of the deteriorating external environment through the various sectors of the domestic economy, and included a special feature on forecasting in times of uncertainty. Going forward, the Macroeconomic Review will be the main vehicle to release MAS’ analysis on current economic developments, but MAS also plans to release a number of more in-depth studies on various aspects of the economy in the Occasional Paper Series. In addition, the revamp of the Monthly Statistical Bulletin in 2001 led to the inclusion of more charts and data on the financial sector, which provided the public with a comprehensive over-view of financial sector developments.

Another dimension of the shift towards increased transparency is MAS’ efforts in economics education. Initiatives taken to improve the level of economic literacy amongst the public included the recent launch of the 2002 MAS-ESS Essay Competition, on “The Role of the State in an Increasingly Borderless World”, and various public lectures to private sector participants and students. MAS has engaged the private sector in dialogue, through fora such as the semi-annual analysts meetings, and provided resource persons to training institutes like the Southeast Asian Central Banks Research and Training Centre and the IMF-Singapore Regional Training Institute. Also, in conjunction with MAS’ 30th Anniversary Conference (See page 59.) which was held in 2001, MAS is putting together for publication the MAS 30th Anniversary commemorative volume, which will provide an analytical discussion of the evolution of monetary and financial sector policies in Singapore since the 1970s. A number of essays by prominent economists will also be featured in the book and will help to interpret Singapore’s policy strategies and experiences within a formal conceptual framework as well as to relate them to the practices and experiences of central banks elsewhere. Other upcoming plans include the introduction of the Academic Visitors Programme. MAS has already secured commitments from at least two academics from the US to deliver public lectures to both MAS staff and the public, and to work on papers focusing on current policy issues. Going forward, MAS will also continue to reach out to students in junior colleges and universities, through lectures on Singapore’s monetary policy framework and developments in the economy.

[Strengthening Surveillance] [Deepening the Analytical Foundation] [In-depth Studies on Structural Trends and Issues] [Exploring Linkages] [What is the Financial Sector Assessment Program?]

[Economic Research and Policy Making] [Backdrop: Challenges to the Singapore Economy] [Response to the Challenges]

[Table Of Contents]