The causes of inflation under Neo-Keynesian synthesis in Singapore: 1990-2014

This study investigates the causes of inflation in Singapore from 1990 to 2014 since there were several upheavals according to the inflation growth rate in Singapore during these years.The paper works on the theory of Neo-Keynesian synthesis and with the use of adaptive expectations.The main objectives were to estimate the influence output gap may exert on inflation rate and to infer the policy implications of the estimated results.The study used kyock transformation to substitute expectations into Phillips Curve and employed OLS technique to estimate the relationships.The study finds that: inflation in Singapore is under adaptive expectative mechanism and output gap is positively correlated with inflation rate, so do expectations.The study concludes that in order to restrain inflation rate in an acceptable range, the controlling of output gap should be attached much importance.The study also recommends the need for policy makers to concentrate on public expectations. 1.Introduction Background of the StudyThe understanding of relationship between the economic growth and inflation is attached much importance since governments' actions will more likely to bring out an overshooting or undershooting of ultimate equilibrium if the quantitative dynamic relationship between those variables are blurry to policy makers, as statedy Guglielmo and Marinko (2011).Moreover, the relationship between output and inflation is not always the same among every country in terms of the intensity of impact and the direction of interaction.Therefore, a systematically knowledge for how inflation is affected by numerals variables is critical in coping with macroeconomic issues.The basic framework of this paper is to trace the causes of inflation, specified to relationship between output and inflation is the Phillips curve augmented by adaptive expectation under neo-Keynesian position.