MONEY AND ASSET PRICES IN SINGAPORE

Abstract

Changes in the money supply have been well known for having an impact on the general price level in the economic literature. However, the way changes in money supply are related to asset prices is relatively unknown, especially with the real estate assets. Little has been done on this topic in the case of Singapore. In this study, the assets investigated are stock and residential property prices.

The influence of changes in money supply to asset prices in Singapore are postulated to have done so through the money supply and income relationship. Hence, an initial objective is to look at the causal relation between money supply and GDP of Singapore. The results seem to point to the fact that changes in money supply have caused changes in the GDP. Unfortunately, due to the small size and openness of Singapore, it seems far fetched to conclude that changes in money supply have caused the changes in GDP. However, it is possible and reasonable to conclude that the results suggest that changes in the money supply 'lead' changes in the GDP instead. Based on that conclusion, the framework and regression models are built to test the hypothesis that changes in the money supply have a relationship with the stock and residential property prices. Residential property is further sub­divided into two, namely, private and public residential property.

The results of the regressions have indicated that changes in money supply and its lags have a fairly significant relationship with all the asset prices investigated.