Monetary Policy Rules in Malaysia, Singapore and Thailand

Abstract

This paper investigates whether monetary policies in Malaysia, Thailand and Singapore are best represented by either the Taylor rule or the augmented Taylor rule. It finds that the augmented Taylor rule, which incorporates the exchange rate and government spending, best represents monetary policies in these countries. The results show that past inflation and the output gap play a role in the monetary policy reaction function in Malaysia and Thailand. The results further show a strong preference towards interest rate smoothing, government spending, and the exchange rate by the central banks.

Is the Augmented Taylor Rule best describe the conduct of monetary policy in Egypt from 2006 to 2020

“…This means that government spending influenced the decisions of the Monetary Policy Committee, as the Central Bank of Egypt facilitates monetary policy by reducing the interest rate when the government increases its spending. b) This finding is consistent with the findings of studies, such as the study of (Saghir & Malik, 2017) on Pakistan and the study of (Tan & Mohamed, 2020) on Malaysia, Thailand, and Singapore, which found that higher budget deficits led to lower interest rates. c) But it should be emphasized that the government's borrowing from the central bank will weaken the monetary policy position in this case.…”

“…The third criticism concerns the interaction between fiscal policy and monetary policy. In cases where fiscal policy suffers from problems such as the problem of tight fiscal space, fiscal policy will not only be ineffective, but it will also restrict the use of monetary policy tools (Tan & Mohamed, 2020).…”