| In this dissertation three different aspects of monetary policy in small open economies (SOEs) are explored. The first chapter investigates Singapore's unique brand of monetary policy and, in particular, how de facto monetary sterilisation works in that country. The second chapter is a theoretical exercise in exchange rate behaviour, testing whether the Dornbusch (1976) overshooting result can be replicated in a richer version of the models of the new open economy macroeconomics genre from the perspective of a small country. Finally, the last chapter looks at the question of whether in a small open developing economy (SODE) with a fixed exchange rate, that the monetary authority retains autonomy in monetary policy, and what role(s), if any, that credit channels may play in its efficacy.;The first chapter studies the role that an obligatory retirement savings plan, known as the Central Provident Fund (CPF), plays in sterilising capital inflows. Using data from 1988 through to 1997, just prior to the Asian crisis, it is shown that the Monetary Authority of Singapore (MAS) mitigated capital inflows associated with an appreciating domestic currency by moving CPF funds between commercial banks and itself.;In the second chapter, a model with nominal wage rigidities is combined with the assumption that all goods are traded in the new open economy framework to derive an outcome where the home country has a strong bias towards its own good. Then it is shown that, under broad assumptions of the parameters of the model, overshooting is a consequence when interest elasticity of money demand is less than unity.;The final chapter investigates the role of credit channels in monetary policy. It is shown that, even within an SOE with fixed exchange rates, monetary policy can retain its potency and is not completely exogenous to the monetary authority in the presence of capital market imperfections. This efficacy of monetary policy is enhanced by credit channels on the part of credit rationing by banks and depends on a balance-sheet constraint of banks. |
