Characterising the Inflation Targeting Regime in South Korea

58 Pages Posted: 12 Feb 2009

Date Written: February 12, 2009

Abstract

This paper attempts at characterising South Korean monetary policy in the period of explicit inflation targeting started in 1999. We explain Korean interest rates in relation to an estimated macro-model, assuming that monetary policy is set optimally. This allows us to obtain the central bank's parameters in the policy objective function. During the IT regime, the data support that the Bank of Korea pursued optimal policy geared towards achieving price stability, with the degree of interest rate smoothing being estimated to be considerable. In addition, the central bank loss function is estimated to include negligible weights on output and exchange rate variability.

Keywords: inflation targeting, optimal monetary policy, small open economies, South Korea

JEL Classification: E52, E58, E61

Suggested Citation

Sanchez, Marcelo, Characterising the Inflation Targeting Regime in South Korea (February 12, 2009). ECB Working Paper No. 1004, Available at SSRN: https://ssrn.com/abstract=1324569

Marcelo Sanchez (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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