THE CONDUCT OF MONETARY POLICY IN SINGAPORE

Abstract

As its title implies, this thesis aims to study the conduct of monetary policy in Singapore. Attempts will be made to analyse the nature of monetary policy in Singapore, its impact on the economy and its future direction. To be more specific, the discussion will be focused on the effects of the policy on the price level and exchange rate.

First of all, the stance of monetary policy in Singapore will be examined. An empirical study will also be done. Next, the asset market approach will be used to analyse the effects of fiscal and monetary policies on the price level and the exchange rate. This will be done in two levels : graphically and mathematically. As fiscal policy and monetary policy are not conducted independently, discussions on fiscal policy will form an important part of the study.

Due to data constraints, examinations of these policies might be biased. Nevertheless, it is found that for most of the time in the past twenty-seven years, monetary policy in Singapore has been expansionary. In the same period, fiscal policy has been contractionary for most of the time. According to the asset market approach, the policy mix would have lead to a home currency depreciation, as oppose to the conventional belief. However, in actual fact, Singapore dollar has appreciated relative to major currencies and the Monetary Authority of Singapore (MAS) has been obligated to pursuit a strong dollar policy.

It is suggested that the policy mix has owed its success to strong domestic economic growth occurred during the period. As economic growth is likely to slow down, constraints may be added on the conduct of macroeconomic policy. A study on recent trend has indicated a general reversal of the stance of the policy mix.