THE IMPACT OF EXOGENOUS SHOCKS ON THE SINGAPORE ECONOMY 1970-1986

Abstract

The objective of this Academic Exercise is to simulate the effects of selected exogenous shocks on the Singapore economy over time using a small trade related macroeconomic model estimated by Toh and Low (1990) and Wilson (1993). Chapter I discusses the characteristics and the development of the Singapore economy and summarizes some early modelling efforts for this economy. The original Toh and Low model is emphasized as it forms the basis of the simulation exercise. Chapter 2 deals with the specification of the equations and identities, which make up the 'modified' simulation model. The model is then validated using dynamic simulation and the sample tracking performance is assessed over the period 1972 to 1986. Results show that the model performs reasonably well, with the majority of the equations and identities displaying root mean square percentage errors of less than 10 per cent. Chapter 3 investigates the transmission mechanism through which 5 exogenous shocks are transmitted to the domestic economy by calculating dynamic unit multipliers or percentage changes from a control run over the sample period. Simulation results show that gross domestic product in real terms is heavily damped in Singapore. If total factor payments to foreigners and total factor receipts from abroad are taken into account, gross national product in real terms is further damped, reflecting the high degree of openness in the Singapore economy. Finally, chapter 4 presents our conclusions summarizing the work done, the main findings of the simulations, some limitations of this academic exercise, and suggests some possible future work.