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1 The Bank of Korea's nonlinear monetary policy rule  / 2012 /  Applied Economics Letters  / vol.19, no.12, pp.1193 / 

10.1080/13504851.2011.617688

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East Asian Economic Review Vol. 12, No. 1, 2008. pp. 157-188.

DOI https://dx.doi.org/10.11644/KIEP.JEAI.2008.12.1.183

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Inflation Targeting and Exchange Rate Management in Korea

Author

Won-Am Park

Hongik University

wapark@hongik.ac.kr
Creative Commons Attribution License

EAER is an open access journal distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license.

Abstract

This paper investigates the experience of inflation targeting in Korea with an emphasis on exchange rate management. The Korean call rate responded to not only expected inflation, but also to output gap and changes in the real effective exchange rate of the Korean won, when we estimated the call rate reaction function over the period of 1999-2007. It was found that the call rate responded to changes in real effective exchange rate more than it did to expected inflation. We also examined whether Korean inflation targeting was actually centered on the exchange rate by estimating the Singaporean style of exchange rate reaction function. It was found that Korean monetary policy was not exchange-rate- centered, since the nominal effective exchange rate of the Korean won responded modestly to inflation and output gap, far less than did the Singaporean dollar.

JEL classification: E47, E52

Keywords

Inflation Targeting, Exchange Rate Centered Monetary Policy, Call Rate Reaction Function, BBC, Real Effective Exchange Rate

Language

Korean

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