Managing in the Middle: Characterizing Singapore's Exchange Rate Policy*

Abstract

It is by now common knowledge that there can be a significant divergence in the de facto versus de jure exchange rate regimes operated by economies. Although much of the recent published literature in Asia has focused on the crisis‐hit economies, Korea and Thailand in particular, scant attention has been paid to Singapore, which officially targets its nominal effective exchange rate (around a band). The present paper examines the degree of exchange rate intervention for Singapore using various methods of assessing de facto exchange rate regimes. In the main, we show that although the Singapore dollar is primarily influenced by the US dollar, in keeping with its de jure classification of a basket pegged regime, other major currencies, such as the yen and the euro, also impact the Singapore dollar. There is also evidence to indicate that Singapore uses the nominal effective exchange rate strategically as a policy instrument to satisfy domestic inflation objectives.