The impacts of the stock price and country risk on the exchange rate in Singapore

The impacts of the stock price and country risk on the exchange rate in Singapore Purpose – The purpose of this paper is to examine movements of the Singapore dollar exchange rate against the US dollar. Design/methodology/approach – An extended open macroeconomic model with the IS, LM, and AS functions and comparative static analysis are employed and applied. The Newey‐West method is employed to estimate consistent estimates for the standard error and covariance when the forms of both autocorrelation and heteroskedasticity are unknown. Findings – The real exchange rate in Singapore is negatively associated with real M1, country risk, the real US treasury bill rate, and a binary variable for the period since the Asian financial crisis, and positively influenced by the real stock price, world output, and the amount of foreign exchange reserves. Real government deficit spending is statistically insignificant. Research limitations/implications – Other exchange rate models may be considered and compared. Practical implications – The Reserve Bank of Singapore may use the outcomes of this paper as a reference in monitoring exchange rate movements. Among others, changes in country risk, stock values, foreign exchange, the world interest rate, and world output are expected to influence the exchange rate. Originality/value – Several important variables such as country risk, the Asian financial crisis, stock values, and the amount of foreign exchange are included to find their impacts on the exchange rate. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Development Issues Emerald Publishing

The impacts of the stock price and country risk on the exchange rate in Singapore

International Journal of Development Issues, Volume 7 (1): 6 – Jun 27, 2008

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
1446-8956
DOI
10.1108/14468950810880026
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine movements of the Singapore dollar exchange rate against the US dollar. Design/methodology/approach – An extended open macroeconomic model with the IS, LM, and AS functions and comparative static analysis are employed and applied. The Newey‐West method is employed to estimate consistent estimates for the standard error and covariance when the forms of both autocorrelation and heteroskedasticity are unknown. Findings – The real exchange rate in Singapore is negatively associated with real M1, country risk, the real US treasury bill rate, and a binary variable for the period since the Asian financial crisis, and positively influenced by the real stock price, world output, and the amount of foreign exchange reserves. Real government deficit spending is statistically insignificant. Research limitations/implications – Other exchange rate models may be considered and compared. Practical implications – The Reserve Bank of Singapore may use the outcomes of this paper as a reference in monitoring exchange rate movements. Among others, changes in country risk, stock values, foreign exchange, the world interest rate, and world output are expected to influence the exchange rate. Originality/value – Several important variables such as country risk, the Asian financial crisis, stock values, and the amount of foreign exchange are included to find their impacts on the exchange rate.

Journal

International Journal of Development IssuesEmerald Publishing

Published: Jun 27, 2008

Keywords: Exchange rates; Stocks; Fiscal policy; Risk analysis; Singapore

References

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