The Interplay of Wage and Exchange Rate Policies in Singapore: A Case of Collective Bargaining in Macroeconomic Management

Abstract

This article analyzes an optimization model of the policy game between Singapore's National Wage Council and the Monetary Authority of Singapore and further simulates the model over policy rules (Nash game versus non‐Nash game), economic scenarios, and the game players' preference and bargaining power. The results indicate that the exchange rate appreciation and wage growth act as substitutes under the Nash rule of policy responses, whereas they act as complements under the non‐Nash rule. Under the Nash rule, the exchange rate appreciation tends to be procyclical and wage growth countercyclical; union workers' bargaining power relative to employers' strengthens the procyclical appreciation uniformly but reinforces the countercyclical wage growth only when the economy undergoes a downturn. Both the Nash and non‐Nash rules call for more moderate appreciation and more flexible wage adjustments than their actual movements. (JEL E64, E61, F41)