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.
Inflation targeting, Taylor rule, Exchange-rate management, DSGE-VAR estimation
Asian Studies | Finance | International Economics
CHOW, Hwee Kwan; Lim, G.C.; and McNelis, P..
Monetary Regime Choice in Singapore: Would a Tayor Rule Outperform Exchange-Rate Management?. (2013). Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/1474
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