The foreign exchange market in a highly-open developing economy

Journal of Development

Economics 12 (1983 2;7-249. North-Holland

Publishing Company

THE FOREIGN EXCHANGE MA,RKET IN A HIGHLY-OPEN DEVELOPING EC6NOMY The Case of Singapore Mario I. BLEJER. and Mobsin S. KHAN Internationd

Monerary

Fund, Washington, DC 20431, USA

Received May 198:., final version received February 1982 The purpose of this paper is to examine the foreign exchange market of Singaport: from the perspective of market-efficiency and further to determine if factors swh as the unanticipated changes in interest rate differentials and purchaing power parity play a role in the behavior of the exchange rate using a variety of tests. It 1;:shown t!lat the Singapore market despite its relatively small size displays many of the same characteristics observed in the markets of developed countries. This is taken as a confirmation of the general nature of the ‘empirical regularities’ found in studies of such markets.

1. Intmduction

While t-he theoretical issues concerning flexible exchanges rates have been examined at great length in the literat Ire, it is only since 1973 that systematii: empirical analysis of this topic has been possible.’ Almost as :;oon as sufliciznt data points became available, empirical studies of foreign exchange markets began to abound, producing a number of interesting ‘empirical regularities’ pertaining to the behavior of exchange rates.2 Such regularities represent not only the starting point for theories of exchange rate determina.tion but also for the formulation of exchange rate policies, since such policies have to generally be conducted within the confines established by how e*tchange rates typically behave. One particularly important regularity that has been investigated extensively eme;rges from the relationship and interaction of the spot and *The au*hors ai-e grateful tci Jdcc& Frencel, Robert Hodrick. III-Su Kim, Lexw-do Leiderman, P.R. Narvekar, Ranji I’. Salgado, John W;lliamso-n, and a : znonym~~us referet: for helpful cam ments. Kellett Hannah provided excellent assistance. The views expressed arc the sole responsibility of the authors. ‘See Goldstein (1980) for a comprehensive survey of xhe theoretical and empirical ~xwes rctating to f oating exchange rates. “See Must:a (1979) alld Frenkel ( 1981a) for references to these studies.

0304-387:3!83/~/$3.~

4:) 1983 North-Holland

238 M.I. Blejer and MS. Khun, Foreign exchange mwkei in a highly-open deuel.~pin,~economy

forward exctlange rates, Th,e finding that, as in the case of futu *esmarkets, ‘The forward rate is an unbiased predictor of I.he future spQt rate..

.‘,j

or in other words, that the foreign exchange market is ‘efIicLnt’, has led to the development of theories of the exchange rate that approach the question from the perspective of an asset market.4 The formulation of new theoretical and empirical models has been encouraged by the fiuther finding that the forward rate ‘. . . is the best availa.ble predictor of the corresponding future spot rate, but is not a very good predictor’? This has naturally resulted in numerous attempts t9 improve upon the predictions of the spot rate that are yieided by the far-ward rate. ‘The predictions provided by the forward rate have, thus, bertcime the standard against which other models attempt to compete. Empirical studies have also provided evidence that well-known theories of exchange rate -determination have a degree of validity. Interest rate difI&atials have been found to play a significant role, as have relative prices via the fa,miliar purchasing power parity relationship, in the behavior of exchange rates, atad most modern exchange rate models employ some variant of these. The results obtained on these various aspects of exchange rates are, however, almcsst entirely ba:zd on the experiences of the major currenc:y markets in ,:he 6tirry recent past, and it is not clear that they will hold for other currencies ;and markets equally. In particular, it can be asked whethi:r these results would catry over to the case of developing countries, where tl e small scale of the market, relatively high entry costs, financial market segmentatron with not all financial agents having the ;ame degree of access to international c:apital markets, etc., reduce the extent of substitutability of domestic and*foe:ign assets and the profitabihty of arbitrage operations. Of course, there are not many developing countries in which markets for financial and forward transactions are sufficiently developed to warrant investigation, but there are a few that have achieved enough sophistication to qualify as candidates for study. Singapore is one particular example of a country whose foreign exchange market should approximate the major ets, and one’ where a systematic analysis has not, to our knowledge, blzen undertaken.” The developme-?t of Singapore as a regional fmancial center was basically *the result of a series of conscious and deliberate steps taken by the %trssa 61979, Q. It’); empirical studies confirming this are Frenkel (1976, 1981a), an;l Levich xample, BiEsCJn( 1978). ahrain and Hong ong. One important study that ~ioes market of a developing country (Portugal) is by de Macedo (19751).It rely with the efE&mcy issue in the context of exchange and capilal controls.

government

to

make

the

financial

seaor

competitive with its foreign counterparts. The last elements of exchange control v&e eiirninased on June:

1, 1978, and there are no oIXc;ial hirsdrances to the movement of capital. However, even prior to the Ii ralization there were no limits on residents investments in the Scheduled Territcbries (comprislog the former Sterling Area), and therefore residents could, isa theory, tran:;fer funds abroa1-j via the Hong Kong market. The exchange rzzte was allowed to float during 19731975, and since 1976 the Singapore do iar has been pegged with margins to a trade-weighted basket of the currencies of its major trading partners. Neither the details ol’ the composition and weigi ts of this basket, fior the margins,’ have been dl sclosed by the authorities. “fhe U.S. dollar is lhe intervention currency, and the rates for other crlrrcnsies are established on the basis of the daily ra1.e for the U.S. dollar and their cross rates in international markets. The floating of the rate led to a rapid development of the foreign exchange market, and although the volume of transactions is by no means comparable to the transactions in the major markets, the Singapore market is in fact the largest in developing countries. A very active forward market, covering transactions of various maturities, has aiso developed with quotations being given on a daily basis hy participating banks. A large part of Singapore’s development as a financial center is reflected in the growth oi’ the Asian Currency Market.’ This market, which operates in a manneksimilar to t+e Eurocurrency market, has become the main center of international financial interme iation In the South-East Asian region. Whille still small compared with the Euromarkets, its growth in recent years has been quite spectacular,’ and a? in the casz of the Eurocurrency market. a major propo:tion of transactions are interbank, with interest rates being market-determined and closely linked to foreign interest rates. The purpose of this paper is essentially to determine if certain of the empirical reg.ularities observed in the major currency markets are also relevant in the c:_se of Singapore. If they are, the genera.1 natur#: of these regularities would be supported since they would be shown to hold independently of the size of the market. The particular period over which we examine the evidence stretches from June 1976 to September 1981 The core of the paper examines the issue of efficiency in the foreign exchange market in a variety of wacs (section 2), and further deals in section 3 with [he roll: of in the deter_minati!on of the exchange rate. rhis latter been given considerable attention by Mussa (197’7). Dornbusch (1978) and Frenkel (1’Na). In this same section we also examin{: the empil+cal validity of the farni iar purchasing 2ower pal ity proposition. A concluding seztion brings out the main implications of the study. ‘news’ or ‘surprises factor has rcxently

at

‘At the end of 1981, the size of the market was around rates between 20 and 40 percer:t per year since 19’75.

U.S. 6136 billion, and IL~-s+WI gwving

2 Tests of market effwiency The modern asset approach to the determinatior , of exchange rates is centered on the, idea that the, exchgnge rate should @ regarded BS the relative price of ‘two assets. ,Qczordingly, it should be determined by a prctcxzsssimilar tb tbat oprating in other asset m$rkets, in which current ’ / prices are greatly affected by expectations, and the irice set for transactions in futures embsdies &Gently the a&abIe illformation kbout the path to be followed by all t&z relevant v&iables. Specifically, the foreign r:xchange market is said to be eflcienl if the forward rate incorporates all the information about the future spot r: rte ‘which is available to economic agents at the point in time at which the forward rate is set. The test of market efficiencyentails proving that the foilward rate is an unbiased predictor of the future spot rate, and this finding in the major foreign-exchange markets is one of the most important of the empirical regularities to emerge.” The question WC:now consider is whether this type of market efficiency also exists in the Sngapore exchange market. A standard empir%al test of this hypothesis is performed by regressing the current spot exc!lange rate (SJ on the one-month forward exchange rate set the previous month (&- 1):

where e is the error term. The efficient market hypothesis implies that *0-

-0,

LE1=1

and further that q be serially uneorrelated.10 The results from estimating (I) using end-of-month data for the period June 197643qtember 1981 are shown in table 1, The data used are described in the appendix. We find that basic hypotheses ab.,ut the parameters are accepted at the 5 percent significance level. The constant is not significantly diKerent from zero, and al not signiftcantly diErent from unity. Thr: Durbin-Watson statistic indicates the absence of first-order dutocorrelation, and the Q-statistic calculated over 11 lags confirms this for up to the eleventh order autocorrela:ion as well. These results are in general agreement ith those reported by Frenkel (1%la). The r=ffrciency hypotha;is implies, in addition, that the forward rate summarizes the irjurmation available about the future spot rate and, th.erefore, other Formation available, at t- 1 should not affect the results f :nkel (197G, 1981a), Levich ( 1978, 19791,and Mussa (1979).

the random-walk behwior of the spot exchange rate would a.so imply the constant and slope terms. Interest parity in the Singapore cuntext and Khan (1980).

M.1. Bltjer and 1d.S. Khan, Fordpign tj.vhan,ge market in a hi,ghly-open deoelnping txwnomy 241 Tar L”1 --

_

number

Dependent variable

(1)

f:,y.

- -.- ._-

__

--_-

_______--

_

~-

Q-statistic Constant

In F;__1

In s,

0.032 (1.51)

0.958 (36.40)

(2)

InS,

0.03 1 (1.46)

0.846 (6.55)

(3)

InS,

0.033 (1.52)

0.900 (8.78)

-

-.-

P-P-_

In F, A In k;’ J

0.1:4 i3.89) 0.059 (0.60)

R’

S.E.E. _. ---_

D. w. i&f)

0.955 0.013

2.19

d.85 (10)

0.956 0.0 13

1.97

-

0.956 0.013

2.08

_-

-

---_--

Tvalues are reported in parentheses below the coeffkients. Data sou~‘:es ale corlt lined in the appendix. R2 is the coeffkient of determination, S.E.E. is ~ht: standard error of ‘ihe estimated equation, and D.M! i; the Durbin-Watson test statistic. The Q-statistic test5 for the presence of higher-order autocorf-e!ation. with df signifying the degrees of freedom.

obtained for eq.

(1). To

test this hypothesis we run the following regression:

where F, 2 is the one-month forward prevailing rate at time f -2. Eq. (2, tests the hypothesis that information avai”able at t - I about the past history of the forward rate should be already Muded in F,_ 1 and therefore!, thp inclusion of F,_, in the equation should not affect the results. An additional test of the same hypothesis entails the comparison of the predictiv,: power of the kee-month forward rat? with t5at of the one-month forward iate, both being lagged suitably, i.e., (3)

ant Ff-, is the t hrce-month forward rate at tin.e t - 3. Ihe three-mol\th forward rate prevailing at t -3 should reflect all the information avaiklble at that time about the spot exchange rate in period t. At time D- 1, hosever, all the information available should be embodied in F t- 19including the new developments between t - 3 and ,t - 1 so I hat if F,. , is includ:,ld, the effect of F:_ I should be unimportant. We WCUM therefore expect that the coeffkient a2 would not differ from zero rn botln eqs. (2) and (3). The results from estimating these equations are also reporr:ed in t;ible 1 and they tend to confirm t)re posts lated hypot’Lleses at tht standard levels L~,F significance. On thte basis oi t e sesd~s of ihese k-1) skayl~ t&s w: wou~ in concluding that the foreign exchange market b4 efficient, in the sense we

described earlier, and the eq,s.(1)--U) certainly seem to reproduce the results we typically observe reported for major currencies, These tests, 111owever, have been characterized in recent literature aI ‘weak’ efficiency tests z:tndtheir validity challenged. Bikon {19Sl? for lexample,petformed a mare !&ingent test of %&a$ is tiid& as the f s@Mative e@kx~$ hy$othe&.r r This test is based an estimating the first di&rence form. of eq. (I), i.e., relating the actual rate of depreciation to the forward premium in the previous pcziod: \

dlnS,=a,fa,In(~/S),_,+e,.

(4I

However, since the test of the efi,ciency hypothesis involves testing the joint hypothesis as =O artd uI = 1, eq. (4) can be k-written differently to make this joint test easier to perform, i.e., as A In S,c- In(F/S), . v - 1=:a9 + a; h (F/Is),- I+ ~$3

(9

where dr =a1 - 1 and the joint hypothesis to be tested is now simply that 110=a; =O. The estimates of eq. (5) for the Singapore case are reported in tabie 2. This result shows that the joint hypothesis canno; be rejected at the 90 percent confidence level since the F value is well below the corresponding critical

ka’lue. Two alternative stronger efiiciency tests, also based on first-differences of the relevant variables, have been proposed by Frenkel (1980) and Hansen and Hocirick (1980). Frenkel’s test consist of adding to eq. (4) past values of the rate of change of thr: spot rate:12 A In S, - in (F/S)ll_ 1 =ao+a;

ln(F/S),_, +a,AlnS,_,+E,.

(6)

The hypothesis is that if the forward premium summarizes all the available useful information related to the future path of the exchange rates, the past havior of the spot should not be of importance when predicting its future evolution. The joint hypothesis, which in an efIicient market should not be rejected, is that a0 = a; = a2 = 0. Hansm and Hodrick (1980) specify the explanatory variables for what they term as the forecast error (i.e., the diffsrence between the realized rate of change of the spot rate and the previous period forward premium) as a a market as spculative efficient when the supply of speculative funds is rward price that is equal to the expected future spot psice. one lagged vafue of the change in the exchange rate, while es to any number of lags.

fA 92) (“.d.J,

-0.107 (0.83)

AInS, _,

-0.109 (0.85)

[AInS,_,In(F/S),_,]

-0.016 ;0.12)

[AInS,_,In(F/S),jJ

S.E.E.

0.012 0.013

0.045 0.013

0.034 0.013

R'

1.98

2.00

2.20

D.W

198 1.”

0.36 (2.61)

1.44 (2-6 1J

(l&2)

2.2i

F (i&‘)

“T-values are reported in parentheses below the coeflicients. Data sources are contained in the appendix. R2 is the coeiiicient of determination, SEX. is the standard error of the estimated equation, and D.W is the Durbin-Watson tesr statistic. The F-statistic (with degrees of !%&NI+I, Ic’f: in parentheses) tests the joint h_vpothesis that the coefficients are no1 significantly different from Lero.

-__-I__

- O.WI

B inS,-

iii (F/S),

_ 1

- 1.318 (1.39)

-0.002 (0.83)

AlnS,In (F/s, --1

(7)

(1.49)

(6)

- i.397

In (F/S), _ ,

(0.69)

Constant -O.iiiiZ

AInS,In (US), - 1

Dependent variabie

(5:

~I_.

number

cy.

Further tests of efficiency of the foreign exchange marker, Singapore June 1976September

Table 2

constant and the lagged values of the forecast error:

If the current forecast e&or is untiorrelated with information available at time t - 1 the joint hyfiothesis to test in this case is :hat b0 =b: = li2 =O. The results of estimating {5), (6) and (7) are shown in table 2, and in all cases, we cannot rej&f the joint hyijothesis based on the Pstatistic obtained. Those results are r,oir&tent with those obtained by Frenkel (1980) and, to a somewhat lesser extent, with those reported by Hansen and Hodrick (1980). They tend to support the evidence of table 1 and confirm that the eficiency &aracteristicsl of the foreign exchange market in Singapore are similar to those o’bserved in the more developed industrial countries.

3. Factors affecting exchange rate The role of hews and purdhasingpower parity Even though the forward rate is shown to be an unbiased predictor of the future spot rate, the evidence does not necessarily imply that it is the best, or even a very ,jrood predictor. This can be ascertained from a cursory examination of’ the data, and is confirmed by the values of the standard errors of the es:timated equations reported in tables 1 and 2. In or&r to be consistent with the e&imt-market hypothesis what is required is that the whoke spectrum of expectations and information available at the time of setting the forward rate would be reflected by that rate. The current spot exchange rate will reflect then, in addition to the previously formed expectations, all new and unpredicted relevant events. Finding the forward rate to be generally a poor predictor allows Mussa (1979, p. 45) to hypothesize that ‘.. . it is likely that the bulk of observed changes in exchange rates will be related to “unanticipateti ’ changes in the basic determinants of the exchange rate.’ To test the hypothesis that unexpected events affect the spot exchange rate and cause it to depart from the previous forward rate, we need to specify a measure of ‘news’. However, the problem of specifying and measuring unohrvable expectations and concepts such as news are well known. The lowed here is the one proposed recently by Frenkel (198 f a), in idea is to measure news by the unexpected changes in the foreign interest rates, on the grounds that ated events affecting asset markets, kel (i981a), therefore, postulates the

M.I. Blejerand MS Khan, Foreign exchaqx

market

in a highly-opesl ctewlnping

economy 245

following relationship for the spot e.xchange rate:

where [i-i*]” is the unexpected differential between the domestic and foreign nominal interest rates. The sign predicted for the interest rate diflerential is not, however, unambiguous since two opposite effects operate on the spot exchange rate. On the one hand, the monetary approach to exchange rate determination stresses the effects of interest rates on velocity and predicts a positive sign, since increases in the interest rate differential would tend to depress the domestic demand for money more than the corresponding foreign demand, thereby inducing a depreciation of the spot exchange rate.’ 3 On the other hand, conventional analysis would stres:) that the inflow of capital encouraged by a higher domestic interest rate, and an improvement in the current account following the reduction in aggregate demarid caused by this increase in the interest rate, would lead to an appreciation.14 The test carried out involves, as a first step, decomposing the actual interest rate differential into its expected *and unexpected components. For that purpose we specified the following process for the interest rate differential: [i.-i”],=Yo+Yr

lnF,_, + 2

yj[i--*It-j+1

+A

j=2

and arguing that the fitted values of this function represent the CxFected i :terest rate differential [i- i*]F, and the residuals, Pi, the unexpected, [&_i’“]:*‘5 In the estimation of (9) for the total sampie period we found that the r>rocess was not stable over the complete period,16 a& since the coefficients are apparently chCinging over time it is not valid to use (future) observations c:cpectations are formed. As such, a sequential not available at t estimation of (9) was performed to obtain the values of [i--i*]” and [i- i*]“. The basically involved estimating (9) from observation 1 to k + 1, where k is the number of explanatory variables including the constant, and theta updating month-by-month to calculate the predicted vaiu:: of [i-i*],.” An ‘%ee, for example, Fr+nkel (1976) and Biison ( 1978). '4See Frankel ( 1979). “‘TheII choice of using three lags” to ;.;enerate the anticipated values of the interest r ‘te diffexntial was essentially arbitrary. 16The stability of eq. (9) over tim,p was examined using crne of the tests proposed by Brown, Durbin and Evans (1975). This test procedure, whit i~voIv~d the ~alc~$ation of a ‘cusu s having 10 specify the break point in the relations@ (4 prieri. In a sense, method itself searches fo!- this point, if it ellists. “In actual fact [i--i+: t is the predicted value for the next month.

Foreign crxchunge market in a highly-opm deosbping economy

246 j#.#.I. Biejer and MS. Khan,

eficient method for doing this, which avoids repeated matrix inversion, is described in Khan (1981). &I-ing calculated thle expecte!d and unexpected interest rate difkrentials, we proceeded to estimate the following equations: >

.

The first of these three-quatioris uses the actual 4nterest rate differential, the second considers only the unexpected d%ke&& and the last one includes bol,h th.e actual differential and its ~lexpected component. We expect that, apart from the the effkieat~m~k&s hypothesis governing the constant term and the ,coe%cient of tk- lagged ‘forward rate9 that the coefficient a2 would reflect E&I twos ‘types of interest rate effects discussed above and, therefort:, it/s predicted sign is ambiguous. .fn addition, “we expect that, when fk’- i*]” -is included in the eqluation along with the actual differential, ~1~wonld be zero if only news is the relevant variable. The results of these three equstions are reported in table 13. In all three equations we find the constant term not significantly different from zero, and the coeficient of the lagged forward rate not significantly different from unity, both at the 5 percent lel;Jel,and further, no evidence of serial correlation in the errors. The erf,ct of the actual interest rate differential turns out to be negative, that is, an increase in this differential would lead to an appreciation of the Singapore dollar, and the coefficient measuring this is signifkant1.y difCerent from zero. Table 3 Tests of the roleof news in the determination of the spot exchange rate, Singapore, November 197b-Septmber 1983!.a P .. - ._.E;q. i Dependent ntlrnb~ - variable Constant In Fz_ t [i - i*J [i-i*]: R2 S.E.E. D.W v

uu 12) -1-I 5

in5,

-0.003 (0.10)

0.986 (27.6 1)

In S,

0.044 (1.73)

0.945 (30.00)

In St

0.007 (0.18)

0.983 (23.34)

- Cl.032 (2.31)

- 0.029 (1*35) cq_.. .

--

_

0.945 0.0 13

2.47

- 0.029 (1.85)

0.944 0.013

2.45

- 0,034 (2XQ

0.946 0.0 13

2.48

rmtheses below the coefficients. Data sources :\rt: cmtaiml in the coefficient of determination, S.E.E. is the w-or 01’ the is the ~u~~i~-~~atso~ kst si atistic. Stilnd;ilXl

MI. Blejer and MS. K “tan, Foreign exchange

market in a highly-open

developing

economy

247

The effect of the unexpected differential is negative 8,s well, in contrast to the findings of Frenkel (198 la), and this would tend to indicate the dominance of the effects predicted by the conventional view that an unexpected rise in thl: domestic interest rate relative to the foreign,4 would induce an appreciation of the spot exchange rate. It is possible that the actual interest differential yields a significant \=ffecton the spot exchange rate in eq. (10) cause it incorporates botzt the expected and unexpected components, and th e estimated coefficient .s r,Fsentially picking up C-reeffects of the latter. This hypothesis is confirmed by the results for eq. (12) where the actual diflFerentia1and the unexpected differential ;;re introduced separately. The coeticient of the unexpected differential increases slightly in terms of both size and significance, while the coefficient of the actual differential is now not significantly different from zero. An additional finding reported in a number of exchange rate studies of industrial countries is the generally weak performance of the standard purchasing power parity (PPP) for nulation during the 197Os, particularly when comparisons with the U.S. dof!ar are involved.lg In order to complete our analysis of the Singapore exchange tiarket we tested the PPP relationship utilizing monthly price indices for Singapore and the United States. Relating the ratio of the price indices to the spot exchange rate yielded the follow& results: In&=

0.947 -t 0.783 ln ( P/?*)t, (86.45) (13.90)

R2 =:0.785, S.E.E. =0.026,

D.W =0.29,

(13

where P and P* are the consumer price indices for Singapore and the United States, respectively. 1Uthough the coefficient of relative prices is highly significant, it turns out to be significantly different from unity, which is the value predicted by the PPP doctrine. Moreover, the residuals in eq. (13) are serially correlated, suggesting that the equation is misspecified. An alternative version of PPP, namely relative PPP, which relates the vari;=tiolr in the exchange rate to the differential in infiation ratl;s, gave the following results: AlnS,== 0.001 + 6.353 A In (P/P*),, (0.85) (I .47)

R2= 0.039,

!‘.E.E.=0.014,

m/e/:-2.1 7.

(14)

While this first-difference formuI&ion does remove the first-order serial correlation in the resduals, t bent of the infhtio~ d~~~~~~~~~~~ is not

248 MI. 3&r

and MS, Khan, .F”weigtiexchiulge+wr,tet irt a’ Mghly-open developing economy

significant at the 5 percent level. This w&id indicate that,” at least as far as short-run fluctuations are concc-!,*ned,the link between exchange rates and te price levels is not tha.t clea+rut, One would presumab!y have to be more precise, as Frenke:l (“r98la) and ~hers ha ve argued, in defining; the price index to utilize in trying ro yroprly mctdel.and test the PFP relationship. .

;

I

1I* ~

There are two main, conclusions -that can be drawn from our study. First, from the viaqmintd eticientmarkets, the foreign exchange market in Singapre, though far smdler in size rn compatison with the major fmancial centers, displays much the same charactf:rist& Using a variety of empirical tests that have been proposed in the Jtefature, it was demonstrated that the market can indee< be, regarded a,s efficient, The policies adopted by the authorities to make Singay)ore into a regional financial) center along the lines industrial countries appear to have achieved a considerable mewure of success in a ftirly short period of tie. The second conclusion retates more to the behavior of the exchange rate, and we found that generally the same factors that are regarded as important in developed cour?tries played a significant role here as wel!. There was empirical support for the notion tha: ‘news’, as reprcse$.ted by the unexpected movements in the differential between domestic and foreign interest rates, was related to the fluctuations in the exchange r;;te. The tests indicated that an unanticipated increase in the differential would tend to appreciate the Singapore dollar, and vice versa. A simple version of the purchasing power parity relation was also tested anal yielded, as is customary, mixed results. Appendix: Data sources and defiitions _

Aft the Ma used in the empirical analysis were provided, with the exceplions noted &~Iw~ by the Monetary Authority of Singapore. The series on exchange rates and interest rates are daily closing *rateson the last Friday of the month, and cover the period March 1897&-September 1981 on a monthly basis. ‘The precise definitions of the variables are: = spot exchange rate (Singapore dollars per U.S. dollar), = one-month forward exchange rate (Singapore dollars per U.S. dollar), F3 ==threc-month forward exchange rate (Singapore dollar per U.S. dolktr), i =one-month Interbank rate, expressed in percent per month, i ==one-month Eurodol!ar rate, expressed in perdent per month - !3ata 9 and, ~t~~~~~~~

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