Economic Fundamentals and Managed Floating Exchange Rate Regime in Singapore

¡°Pegging the Singapore dollar to a basket of currencies instead of a fixed rate to the US dollar and having a transparent system were claimed by the government of Singapore to have enabled the country to weather the Asian financial crisis better. This empirical paper reviews the claim by testing the consistency of observed Singapore dollar real exchange rate against the country¡¯s key real economic fundamentals. Employing the concept of Natural Real Equilibrium Exchange Rate (NATREX), our study finds that the real effective exchange rate has floated around the NATREX rate in 1990¡¯s. Hence, our test results support the official statement.