Publication Type

Journal Article

Version

publishedVersion

Publication Date

10-2014

Abstract

Since 1981, MAS has used the exchange rate as the primary tool of macroeconomic stabilisation. An exchange rate-based policy rule not only describes very well Singapore’s actual conduct of monetary policy but it has also delivered reduced volatility in inflation and output. Yet, as the quotation above suggests, during the onslaught of the contagion effects arising from the 1997–98 Asian Financial Crisis when Singapore’s export demand declined precipitously, threatening a rise in the unemployment rate, exchange rate adjustment did not act alone to counteract the decline in aggregate demand (AD). Instead, the committee set up by then - Prime Minister Goh Chok Tong recommended a big reduction in wage costs as an additional tool to fight the recession. Indeed, in two other major recessionary episodes that hit post-independence Singapore — the 1985–86 recession and the fallout from the 2008–09 Global Financial Crisis — reducing wage costs was a major policy tool to stabilise the economy.

Keywords

monetary policy, wage cost, aggregate demand, recessions, Singapore

Discipline

Economics | Finance | Labor Economics

Research Areas

Applied Microeconomics

Publication

Macroeconomic Review

Volume

XIII

Issue

2

First Page

91

Last Page

96

ISSN

0219-8908

Publisher

Monetary Authority of Singapore

Comments

Published by the Economic Review Group, Monetary Authority of Singapore

Additional URL

http://www.mas.gov.sg/~/media/resource/publications/macro_review/2014/Oct%202014/Special%20Feature%20C.pdf

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