An Exchange Rate Policy Rule

Eric Parrado ()

No 13347, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: This paper introduces a novel monetary policy framework where the exchange rate becomes the central instrument. Using Singapore as a case study, it explores the Monetary Authority's adoption of the exchange rate as the primary tool since 1981, diverging from conventional approaches centered on interest rates or monetary aggregates. The estimated exchange rate reaction function aligns well with actual deviations, supporting the hypothesis that Singapore's forward-looking policy rule effectively responds to inflation and output volatility, especially during economic crises. This framework offers a promising alternative for countries with open economies and challenges in implementing traditional interest rate instruments.

Keywords: exchange rate; Inflation; monetary policy rules; Singapore (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 F41 (search for similar items in EconPapers)
Date: 2023-12
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac, nep-mon, nep-opm and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:13347

DOI: 10.18235/0005491

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