Need Singapore Fear Floating? A DSGE-VAR Approach

Hwee Kwan Chow and Paul McNelis (paul.mcnelis@bc.edu)

No 29-2010, Working Papers from Singapore Management University, School of Economics

Abstract: This paper uses a DSGE-VAR model to examine the managed exchange-rate system at work in Singapore and asks if the country has any reason to fear floating the exchange rate with a Taylor rule inflation-targeting mechanism that uses the short term interest rate instead of the exchange rate as the benchmark monetary policy instrument. Our simulation results show that the use of a more flexible exchange rate system will reduce volatility in inflation and investment but consumption volatility will increase. Overall, there are neither signi ficant welfare gains or losses in the regime shift. Given the highly open and trade dependent nature of the Singapore economy where the policy preference is for exchange rate stability, there is no impetus to abandon the present monetary regime.

JEL-codes: E52 E62 F41 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010-12
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-dge, nep-mac, nep-mon and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in SMU Economics and Statistics Working Paper Series

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