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Monetary Policy Effects on Disaggregated Prices in Korea (in Korean)

Author

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  • Kangwoo Park

    (Research Department, The Bank of Korea)

Abstract

We document the impulse response of disaggregated PPI (1991Q1~2008Q2) to monetary policy shocks in Korea, employing the factor-augmented vector autoregression model of Bernanke, Boivin and Eliasz(2005). According to the estimated results, Korean disaggregated PPI is more sensitive to macroeconomic shocks, relative to that of U.S. This stylized fact gets more striking after the financial crisis in the late 90s. Unlike aggregate prices, disaggregate prices respond very flexibly to monetary policy shocks, in particular, soon after they occur. Furthermore, there exists a great deal of heterogeneity in the sign and magnitude of those responses. This result hints at the valid cost-channel effect of monetary policy in Korea, and even suggests that the apparent stickiness of aggregate prices may be just an artifact of aggregation bias. We also find that the less competitive or the more materials-intensive sector tends to respond more rigidly to monetary shocks. This result implies that market structure and cost pricing are two main factors in explaining the pricing behavior of Korean business sector.

Suggested Citation

  • Kangwoo Park, 2009. "Monetary Policy Effects on Disaggregated Prices in Korea (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 15(3), pages 84-128, September.
    • Handle: RePEc:bok:journl:v:15:y:2009:i:3:p:84-128
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    Cited by:

    1. Heung Soon Jung & Dong Jin Lee & Tae Hyo Gwon & Se Jin Yun, 2015. "Reference Rates and Monetary Policy Effectiveness in Korea," Working Papers 2015-27, Economic Research Institute, Bank of Korea.

    More about this item

    Keywords

    Disaggregated Price; Sticky Price; Cost-channel Effect; Factor-Augmented VAR;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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