In and of itself, this shift seems likely to have made money markets more segmented, and more prone to the “turbulence” in response to shocks I mentioned earlier. Longer term, this regulatory shift has catalyzed a deep and complex impact on the structure of money markets, which is still unfolding nearly two years later. These effects have included an ongoing increase in the role of FHLB advances as means of intermediation between government money funds and financial firms, as well as ongoing efforts by a wide variety of borrowers and lenders to broaden their counterparty lists and consider new operating frameworks so as to best accomplish their business objectives in the new money market environment. For example, although the FHLBs for years focused their liquidity management on the federal funds market because it provides a high degree of intraday liquidity, they are now beginning to explore greater use of bilateral repo, as that market has similar characteristics and can at times provide them with a higher return. It is likely that these ongoing shifts in money market structure have contributed to fluctuations in rates and spreads, and that they will continue to do so. 11  I view fluctuations in term money market rates of the magnitudes seen recently as normal parts of market functioning during a period of structural change. Wholesale dollar funding, though more expensive, has remained readily available both in the United States and abroad.

Instead, it is preferable to consider a greater reliance on macro-prudential tools and other administrative measures targeted at specific asset markets such as property, in an environment of strong capital inflows and domestic economic growth. This will allow the central bank to better achieve its financial stability objective, as well as serve as a counter-cyclical tool to dampen excessive credit growth and price increases. But macro-prudential policy cannot be a substitute for sound macroeconomic policies. Monetary and fiscal policies need to continue to focus on correcting macroeconomic imbalances, with macroprudential policy focused on ensuring that systemic risk is well-contained. In Singapore and elsewhere in the region, authorities have implemented measures such as Loan-to-Value (LTV) ratios and buyer/seller stamp duties to prevent the formation of asset price bubbles. Our approach in Singapore has been targeted and incremental. Measures are focused on discouraging short-term speculative activity that can distort underlying prices, while encouraging greater financial prudence among property purchasers. Where supply constraints can be ameliorated to relieve cost pressures in the housing, commercial and industrial property segments, the government has done so directly. BIS central bankers’ speeches  3  Conclusion I have highlighted a few issues and challenges arising from structural changes in the Singapore economy. In these areas, there is much scope for further study including joint collaboration between academia and policymakers. First, in robust statistical techniques to identify demand and supply shocks in a dynamic economy. Second, in formulating robust monetary policy rules in the context of ongoing supply-side changes in the economy.