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.
monetary policy, wage cost, aggregate demand, recessions, Singapore
Economics | Finance | Labor Economics
Monetary Authority of Singapore
HOON, Hian Teck.
Wage Subsidies as a Tool to Fight Recessions. (2014). Macroeconomic Review. XIII, (2), 91-96. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/1675
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