Endnotes

¹Calvo et al. (1993) showed the dominant role for push factors, particularly the state of liquidity in the developed countries, as driving force for capital flows to emerging markets.

²All balance of payment data described in this section are obtained from the Singapore Department of Statistics.

³Flows in the capital account have been negligible, being dominated by those in the financial account, see summary table on Singapore balance of payments in Appendix.

⁴The huge direct investment outflow in 2001 is due to the two large foreign acquisitions by the local telecommunication company Singtel and the domestic bank Development Bank of Singapore (DBS).

⁵Trade credits, which are relatively stable despite their short tenor, form a separate component in the other investment account.

⁶Trade credits, which are relatively stable despite their short tenor, form a separate component in the other investment account.

⁷The trend break in the levels of M2 and the corresponding hikes in M2 growth rates at the end of 1998 are due to the incorporation of the Post Office Savings Bank (POSB) into the banking system when it was acquired by the DBS. From November 1998, POSB's data has been incorporated in M1 and M2, and not as a non-bank financial institution under M3.

⁸Obstfeld, Shambaugh, & Taylor (2004) provides a treatise on the open economy trilemma.

⁹With the onset of the Asian crisis, the Singapore dollar actually strengthened on a trade-weighted basis, despite having depreciated against the US dollar. This was due to a sharp depreciation of the regional currencies such as the Indonesian rupiah, Thai baht, and Malaysian ringgit.

¹⁰The MAS (2000) found that covered and uncovered interest parity tended to hold between Singapore and US one- and three-month inter-bank rates, respectively, in the 1990s before the Asian crisis.

¹¹We note that none of the restrictions had been imposed on the liability side of the bank balance sheet which means non-residents are free to build up Singapore dollar holdings by converting foreign currency into Singapore dollars and then place them with the domestic banking unit.

¹²Since the end of 1997, the MAS has shifted its supervisory regime from a one-size-fits-all regulation to a risk-based approach.

¹³The authors suggested a policy-driven paradigm for financial liberalization in emerging open economies: management of the financial liberalization trilemma which states that the extent of any two of the following three components, namely domestic financial development, exchange rate flexibility and capital market openness, should determine the proper course of action for the third.

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