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Monetary Regime Choice In Singapore: Would A Taylor Rule Outperform Exchange-Rate Management?, Hwee Kwan Chow, G. C. Lim, Paul D. Mcnelis
Monetary Regime Choice In Singapore: Would A Taylor Rule Outperform Exchange-Rate Management?, Hwee Kwan Chow, G. C. Lim, Paul D. Mcnelis
Research Collection School Of Economics
This paper adopts a dynamic stochastic general equilibrium-vector autorgressive (DSGE-VAR) approach to examine the managed exchange-rate system at work in Singapore. We examine if the country has any reason to fear floating the exchange rate and adopting a Taylor rule. Our results show that, in terms of overall inflation volatility, the exchange rate rule has a comparative advantage over the Taylor rule when export price shocks are the major sources of real volatility, while a Taylor rule dominates when domestic productivity shocks drive real volatility. The exchange-rate rule also dominates the Taylor rule for reducing inflation persistence.