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.