EXCHANGE RATE POLICY IN SINGAPORE 1980-1989

Abstract

The exchange rate policy in Singapore has not been fully explored. Little has been done on the most important aspect of it, namely the exchange rate intervention policy of the Monetary Authority of Singapore (MAS). For instance, it is well known that the MAS follows a managed floating regime, but exactly how it intervenes to manage the float is not known. MAS intervention has also not been evaluated. This exercise attempts to address such issues. It aims to fill the gap in the local research in three main areas. First, it explores several facets of MAS exchange rate policy, including its rationale and policy instruments. Second, it attempts to specify a possible MAS intervention reaction function. The major finding is that, contrary to the evidence for the advanced countries, the MAS reacts to inflationary signals rather than lean against the wind. Third, it appears that the MAS incurred losses from intervening in every year during the 1980's, except 1984 and 1986. Following a criterion developed by Friedman, there is a preliminary indication that MAS intervention has not been successful in stabilising the exchange rate.