Exchange Rate Pass-Through to Inflation in Singapore: Singapore

Singapore has addressed high inflation over the past years amid a tight labor market through several rounds of tightening of the exchange rate-based monetary policy.
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Volume/Issue: Volume 2024 Issue 039
Publication date: August 2024
ISBN: 9798400283796
$15.00
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Topics covered in this book

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Inflation , Labor , Economics- Macroeconomics , Monetary Policy , Exchange rate pass-through , labor market conditions , inflation development , services inflation , exchange rate pass-through to inflation , $NEER appreciation shock , pass-through to inflation , labor market tightness , Inflation , Labor markets , Consumer price indexes , Exchange rates , Global

Summary

Singapore has addressed high inflation over the past years amid a tight labor market through several rounds of tightening of the exchange rate-based monetary policy. This paper estimates the exchange pass-through to inflation in Singapore with a particular focus on the role of labor market conditions. The paper first finds a strong exchange rate pass-through to inflation in Singapore, after accounting for the potential endogeneity of changes in the exchange rate. Further, it uncovers that labor market tightness dampens exchange rate pass-through and therefore could weaken monetary policy transmission. Overall, the results suggest that monetary policy should be more vigilant under a tight labor market condition. The paper then draws policy implications for taming inflation under tight labor market conditions.