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Characterising the inflation targeting regime in South Korea

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  • Sánchez, Marcelo
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    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. JEL Classification: E52, E58, E61

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 1004.

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    Date of creation: Feb 2009
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    Handle: RePEc:ecb:ecbwps:20091004

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

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