Selected Issues Papers

Exchange Rate Pass-Through to Inflation in Singapore: Singapore

Author/Editor:

Kodjovi M. Eklou

Publication Date:

August 13, 2024

Electronic Access:

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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.

Series:

Selected Issues Paper No. 2024/039

Subject:

Consumer price indexes Exchange rate adjustments Exchange rate pass-through Exchange rates Foreign exchange Inflation Labor Labor markets Monetary policy Monetary policy frameworks Output gap Price indexes Prices Production Taxes Value-added tax

Frequency:

Regular