Staff Papers
Published Date: 01 December 2004

The Long-Run Real Effective Exchange Rate of Singapore: A Behavioural Approach.

MAS Staff Paper No. 36, December 2004 - By Ronald MacDonald


In this paper we use the behavioural equilibrium exchange rate (BEER) approach to identify a long-run equilibrium exchange rate for the real effective exchange rate of Singapore.  We demonstrate that a well-founded measure of the equilibrium value of this country's exchange rate may be recovered from a relatively small set of fundamental variables and that this can be used to produce an assessment of the currency in terms of periods of misalignment.  Using this relationship, the behavioural equilibrium exchange rate was estimated and it showed that, on average, there was an undervaluation of the currency in the post-1998 period.  Nevertheless, the currency was close to its equilibrium in the final sample period (2003Q2), a finding confirmed by our estimates derived from the permanent equilibrium exchange rate (PEER).