Abstract
The objective of the study is to examine the monetary and fiscal policies’ shock on house price variable by using the structural vector autoregressive (SVAR) model for Singapore economy. In addition, the study used international oil prices and gold prices in the SVAR model because concurrent development in oil and gold prices have central influenced over macroeconomic activities that are closely linked with the stock returns. The results indicate that oil price has significant positive effect on gold prices, interest rates and stock returns. Exchange rate and government expenditure shows a negative impact on oil prices. The inverse relationship between gold prices, exchange rate and stock return supports that gold used as a hedge against both markets. However, there is no evidence has been found for crowding out effect through increase in government expenditures. Interaction between exchange rate and stock return is supportive to both stock-oriented and flow oriented models.
Highlights
The economy of Singapore is considered as an economic and financial hub among South-East Asian countries
Two variables are selected for monetary policy channel are short-term interest rate and real effective exchange rate and stock returns are used as an arbitrage variable
The selected monetary and fiscal policy variables were analysed in tandem with stock returns
Summary
The economy of Singapore is considered as an economic and financial hub among South-East Asian countries. This economy mainly depends on international trade. Singapore is highly developed and free market economy with corruption free environment. During 2004-07, the country maintained its real GDP as 8.6% on average, but after global financial crises its economy starts contracting. House prices are showing an increasing trend after 2010 and government expenditure demonstrates consistent increase every year. Extra-ordinary decrease in short-term interest rate shows expansion in monetary policy. A rapid appreciation in exchange rate can be seen since global crisis of 2008, whereas stock prices demonstrate varying but rising trend since 2008 crisis.
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