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Monetary Sterilization of Capital Inflows through the Central-Provident-Fund Savings in Singapore

Author

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  • Ying Wu

    (Department of Economics and Finance, Franklin P. Perdue School of Business, Salisbury University, Salisbury, MD 21801-6860, USA)

  • Ruifang Wang

    (Division of Applied Economics, Nanyang Business School, Nanyang Technological University, Singapore 639798, Singapore)

Abstract

This paper examines the monetary sterilization mechanism of the Singapore economy. We argue that, in the absence of a well-developed open financial market, the Central Provident Fund (CPF) has in fact played a role as a quasi-market mechanism in sterilizing the effect of foreign-exchange assets inflow. Using the error-correction-mechanism (ECM) approach, we model the implicit monetary sterilization mechanism and estimate the offset coefficient between the net-domestic-credit component and the net-foreign-asset component of the monetary base. The estimated ECM regression coefficient suggests that monetary sterilization in Singapore is nearly perfect for the 1984–1995 period. The estimates of other macroeconomic relations also support the hypothesis of the quasi-market monetary sterilization mechanism.

Suggested Citation

  • Ying Wu & Ruifang Wang, 2003. "Monetary Sterilization of Capital Inflows through the Central-Provident-Fund Savings in Singapore," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 65-86.
    • Handle: RePEc:wsi:rpbfmp:v:06:y:2003:i:01:n:s0219091503000979
    DOI: 10.1142/S0219091503000979
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    References listed on IDEAS

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    1. Jeffrey A. Frankel, 1993. "On Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061546, December.
    2. Mr. Kenneth Bercuson, 1995. "Singapore: A Case Study in Rapid Development," IMF Occasional Papers 1995/018, International Monetary Fund.
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    Cited by:

    1. Ying, Yung-Hsiang & Kuan, Chung-Ming & Tung, Chris Y. & Chang, Koyin, 2013. "“Capital mobility in East Asian Countries is not so high”: Examining the impact of sterilization on capital flows," China Economic Review, Elsevier, vol. 24(C), pages 55-64.

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    More about this item

    Keywords

    Monetary sterilization; Central-Provident-Fund savings; Offset coefficient; Small open economy;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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