[5]  Helene Rey and Silvia Miranda-Agrippino find that US monetary policy moves can induce changes in risk premiums across countries, move the global financial cycle, and challenge the monetary policy autonomy of emerging market economies. [6] Three, there appears to be a short-term trade-off between price stability and financial stability. Macroeconomic theory and empirical evidence tell us that although there is no long-run trade-off between price stability and employment, there is a short-term trade-off. This is expressed as a “sacrifice ratio”, or the increase in the unemployment rate necessary to achieve a given reduction in the inflation rate. Likewise, could it be that while there is no long-term trade-off between price stability and financial stability, there is a short-term trade-off? In the current conjuncture, for example, there are concerns that monetary policy tightening to bring down inflation could trigger contagious financial failures. Is there an analogous “sacrifice ratio” between price stability and financial stability? These short-term trade-offs call for a mix of monetary and macro-financial policies to meet the twin goals of financial stability and price stability. Combining the use of monetary policy and macro-financial policies can mitigate tradeoffs between objectives. Studies by both the BIS and IMF have found that policy combinations can be more effective than using a single instrument. Claudio Borio and colleagues at the BIS find that when low inflation in advanced economies required loose monetary policies, tightening macroprudential measures through strengthening capital buffers helped mitigate risks to financial stability from increased risk taking and indebtedness.

Foreign exchange intervention is carried out in support of the monetary policy objective of price stability and not for any macro-financial purposes. There is no explicit inflation target but the track record of keeping core inflation relatively stable and, on average, just below 2% over the last thirty years has underpinned the MAS’ policy credibility. Fiscal policy seeks to promote macroeconomic stability, sustained economic growth, and social equity while maintaining a balanced budget. It is set by the Ministry of Finance (MOF). The Constitution prohibits the use of public debt for government expenditure except for a narrow class of long-term infrastructure projects. Macro-financial policy comprises essentially of macroprudential measures aimed at promoting a sustainable property market. These measures are co-ordinated across the MAS, MOF, and Ministry of National Development (MND). The macroprudential toolkit comprises loan-to-value limits, debt servicing limits, buyers’ and sellers’ stamp duties, and adjustments in land supply. In the movie “Everything, Everywhere, All at Once”, we are told that parallel universes exist because every life choice creates a new alternative universe. Thankfully, the global economy and financial system are not as complicated as the multiverse. But the real economy and the financial economy are like parallel universes with many transmission channels across these two universes that we are only beginning to understand. Achieving coherence across policies through an integrated framework is key to minimising the risk of repeated bouts of financial and economic crises feeding on each other. It is not easy but probably not as difficult as jumping across the multiverse.