The Singapore Economic Review

Behavioral economics is the study of economic behavior beyond the traditional simple economic models of constrained maximization with purely economic objectives (consumption/profits). Some policy implications of the findings of behavioral economics, happiness studies and beyond are outlined, with special reference to excessive volatility in business cycles and the optimal level of public spending. Though behavioral economics potentially provides more support for the restriction of gambling, an outright ban need not be optimal. Though legal casinos may increase some crimes, it will decrease crimes associated with illegal gambling. Some restrictions of problem gambling will be needed. Apart from (if not rather than) the attraction of tourists/visitors, the consumer surplus associated with responsible pleasure gambling is likely to be the major benefits of legalizing casinos. The proposed entry fee may be better replaced by a membership system, as the former is unfair to locals and will lead to unhealthy gambling.

This paper examines the link between government spending on a public good and pattern of trade in the presence of specialization-based external economies. The results presented in this paper are based on a simple model of an economy that produces one industrial, one agricultural, one public good and a large number of varieties of professional services. It is shown that, when the agricultural and the public goods are non-traded, the country where government spending is relatively large is a net-exporter of varieties of professional services; if varieties of professional services are equally (or more) capital intensive as compared to the industrial good. When the public good and varieties of professional services are non-traded, the country where government spending is relatively large may export the industrial good in exchange for the agricultural good; if the combined capital intensity of professional services and the industrial good is greater than the capital intensity of the agricultural good and the size of specialization-based external economies is sufficiently small.

This paper examines the long-term as well as short-term equilibrium relationships between the major stock indices and selected macroeconomic variables (such as money supply and interest rate) of Singapore and the United States by employing the advanced time series analysis techniques that include cointegration, Johansen multivariate cointegrated system, fractional cointegration and Granger causality. The cointegration results based on data covering the period January 1982 to December 2002 suggest that Singapore's stock prices generally display a long-run equilibrium relationship with interest rate and money supply (M1) but a similar relationship does not hold for the United States. To capture the short-run dynamics of the relationship, we replicate the same experiments with different subsets of data representing shorter time periods. It is evident that stock markets in Singapore moved in tandem with interest rate and money supply before the Asian Crisis of 1997, but this pattern was not observed after the crisis. In the United States, stock prices were strongly cointegrated with macroeconomic variables before the 1987 equity crisis but the relationships gradually weakened and totally disappeared with the emergence of Asian Crisis that also indirectly affected the United States. The results of fractional cointegration and the Johansen multivariate system are consistent with the earlier cointegration results that both Singapore and US stock markets did possess equilibrium relationships with M1 and interest rate at the early days. However, the stability of the systems was disturbed by a series of well-known financial turbulence in the past two decades and eventually weakened for Singapore and completely disappeared for the US. This may imply that monetary authority may take action to respond to the asset price turbulence in order to maintain the stability of monetary economy and thus break the existing equilibrium between stock markets and macroeconomic variables like interest rate and M1. Another possible explanation is that the market became more efficient after 1997 Asian crisis. Finally, the results of Granger causality tests uncover some systematic causal relationships, implying that stock market performance might be a good gauge for Central Bank's monetary policy adjustment.

The objective of this paper is to test the validity of two views of monetarism in Bangladesh, India, and Pakistan. A Structural Vector Autoregressive (SVAR) model is developed and the objective is accomplished by conducting Granger causality tests and estimating variance decompositions and impulse response functions. The first view of monetarism that changes in the quantity of money cause, lead and are positively related to changes in prices at least in the medium to long time horizon is supported in Bangladesh, India, and Pakistan. The second view of monetarism that changes in the quantity of money cause, lead and are positively related to changes in output at least in the short to medium time horizon is not supported. The implication of such a result is that an expansionary monetary policy only fuels prices with insignificant effects on output. It supports the view of real business cycle theorists who postulate that policy changes only affect prices.

This article aims to show that the literature so far has not been able to present a statistically robust answer to the question of what drove Singapore's spectacular savings rates. A substantial part of the literature — particularly earlier studies — must be rejected on methodological grounds since the time-series properties of the respective data series were not taken into consideration when choosing the appropriate testing method. Others have omitted potentially crucial determinants of savings or have wrongly disaggregated Gross National Savings. This unsatisfactory state of investigation into Singapore's saving behavior is unfortunate because savings play such a central role in Singapore's economic history since the country's independence. For future research the article also supplies new data series, which disaggregate Singapore's national savings after taking the country's peculiarities into consideration. The critical assessment is also intended as a guideline to future researchers of which mistakes to avoid and where potential pitfalls lie.