On Singaporean Dollar and Purchasing Power Parity

Venus Liew, Ahmad Zubaidi Baharumshah () and Kian-Ping Lim

International Finance from University Library of Munich, Germany

Abstract: This study re-examines the validity of relationship between Singapore Dollar-US Dollar exchange rate and the relative price using the latest econometric methodologies that accounts for non-linearity. Among others, this study finds Exponential Smooth Transition Autoregressive (ESTAR)- type non-linear mean-reverting adjustment process of the nominal Singapore dollar-US dollar rate towards consumer price index ratio. Unlike previous finding of linear cointegration relationship between nominal Singapore Dollar-US Dollar exchange rate and consumer price index ratio, this study shows that the relationship is in fact non- linear in nature. The major economic implications of our findings includes: (1) Policy makers need to take non-linearity into consideration on their policy decision; (2) Monetary Authority of Singapore (MAS) is able to maintain the macroeconomic equilibrium albeit the authority’s strong dollar policy; and (3) One should keep track on Singapore monetary policy and other innovations in aggregate demand in order to closely monitor the movement of Singapore exchange rate.

Keywords: Exchange rates; Non-linearity, Purchasing Power Parity; Exponential Smooth Transition Autoregressive (ESTAR), Exchange rates; Non-linearity, Purchasing Power Parity; Exponential Smooth Transition Autoregressive (ESTAR), Singapore. (search for similar items in EconPapers)
JEL-codes: F31 F32 (search for similar items in EconPapers)
Date: 2004-11-01
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpif:0411001

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