Monetary regime choice in Singapore: Would a Taylor rule outperform exchange-rate management?

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 term...

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Bibliographic Details
Main Authors: CHOW, Hwee Kwan, LIM, G. C., McNelis, Paul D.
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2014
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Online Access:https://ink.library.smu.edu.sg/soe_research/1524
https://ink.library.smu.edu.sg/context/soe_research/article/2523/viewcontent/Singapore_Jan2010.pdf
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Institution: Singapore Management University
Language: English
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Summary: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.