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Estimation of the asymmetric monetary policy reaction functions in Korea (in Korean)

Author

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  • Young-Sun Kwon

    (Institute for Monetary and Economics Research, The Bank of Korea)

Abstract

This paper investigates the Bank of Korea's monetary policy reaction functions using an empirical monetary policy analysis in which the central bank is allowed to assign different weights to positive and negative deviations of inflation from its target values and output gap. The estimates of the Bank’s monetary policy reaction functions indicate that the preference of the Bank has been asymmetric with respect to both inflation and output gap. From 1999 to 2004, the interest rate response to output contractions was larger than the response to output expansions of the same magnitude. In addition, monetary policy in Korea was more responsive to actual inflation falling below the target than rising above the target to the same extent. These asymmetric responses seem to be largely due to a series of financial market disturbances, which forced the Bank to give great considerations in its implementation of monetary policy.

Suggested Citation

  • Young-Sun Kwon, 2006. "Estimation of the asymmetric monetary policy reaction functions in Korea (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 12(2), pages 1-25, June.
    • Handle: RePEc:bok:journl:v:12:y:2006:i:2:p:1-25
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    More about this item

    Keywords

    inflation targeting; monetary policy; asymmetric objectives; central bank's loss function;
    All these keywords.

    JEL classification:

    • 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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