As one of South-East Asia's Newly Industrialising Economies, Singapore has achieved remarkably high rates of economic growth since achieving independence in 1965. While much of this success has been attributed to the government's aggressive investment and growth policies, monetary policy in Singapore also plays a considerable role in promoting economic growth. Monetary policy in the Singaporean context, however, differs considerably from that practised in most other economies. Most prominently, it is the exchange rate which has been used as the primary monetary instrument since 1973, instead of the money supply or interest rates. In addition, domestic price stability - rather than output stabilisation - has been the main target of exchange rate policy since 1981. The aim of this study is twofold. Firstly, econometric techniques are employed to formally model five macroeconomic aggregates (namely, the real exchange rate, money supply, interest rates,
the consumer price index and gross domestic product) in order to derive a dynamic causal chain, and hence the operative transmission mechanism in the Singaporean economy. The investigation is initially conducted over the full 25-year sample, and is followed by a split sample analysis with a specific view of detecting possible changes in dynamic causal relationships both prior and pursuant to the exchange rate targeting of inflation in 1981. It is shown that exchange rate policy does indeed have a significant bearing on inflation outcomes. Secondly, the volatilities of the individual macroeconomic series are examined and it is found that there is little evidence of significant volatility in any variable over the course of the sample period. Non-linear techniques such as those established by Sichel (1993) and Delong and Summers (1986) are also utilised to investigate and account for cyclical 'steepness' and 'deepness' asymmetries in the Singaporean business cycle. The results indicate
that neither form of asymmetry is prevalent in the Singaporean economy.