IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/4676.html
   My bibliography  Save this paper

Monetary and Exchange Rate Policy in Korea: Assessments and Policy Issues

Author

Listed:
  • Eichengreen, Barry

Abstract

This Paper considers monetary and exchange rate policy in Korea since the financial crisis of 1997-98. The Bank of Korea has adopted much of the apparatus of inflation targeting, with a band for target inflation and a Monetary Policy Report to the National Assembly. This regime has served the country well. But neither the Bank’s publications nor the statements of its Monetary Policy Committee make more than passing reference to the exchange rate. It would be surprising if in fact the exchange rate played little role in conduct of monetary policy, for in an economy as open and sensitive to foreign trade and investment as Korea, currency movements contain information useful for forecasting inflation and the output gap. My findings suggest that the Bank of Korea does care about the exchange rate – and not only because it movements provide information relevant for the inflation forecast. In addition, the central bank responds to movements in the exchange rate for other reasons, like its implications for the balance of investment in traded and nontraded goods and its implications for financial stability. My recommendations are thus for more clarity on the role of the exchange rate in the formulation and conduct of monetary policy. In particular, if the members of the Monetary Policy Committee are attentive to exchange rate movements, which is what is suggested by the evidence presented here, and especially if they care about such movements for reasons not limited to the utility of that variable for forecasting future inflation, then they should acknowledge this in their monthly press releases communicating the rationale for their decisions to the public and the markets.

Suggested Citation

  • Eichengreen, Barry, 2004. "Monetary and Exchange Rate Policy in Korea: Assessments and Policy Issues," CEPR Discussion Papers 4676, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4676
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4676
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sánchez, Marcelo, 2005. "The link between interest rates and exchange rates: do contractionary depreciations make a difference?," Working Paper Series 548, European Central Bank.
    2. Hyeongwoo Kim, 2014. "Estimating Interest Rate Setting Behavior in Korea: An Ordered Probit Model Approach," Auburn Economics Working Paper Series auwp2014-02, Department of Economics, Auburn University.
    3. Parsley, David & Popper, Helen, 2014. "Gauging exchange rate targeting," Journal of International Money and Finance, Elsevier, vol. 43(C), pages 155-166.
    4. Vincent Bouvatier, 2006. "Hot Money Inflows in China : How the People's Bank of China Took up the Challenge," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00111153, HAL.
    5. Sánchez, Marcelo, 2006. "How does information affect the comovement between interest rates and exchange rates?," Working Paper Series 608, European Central Bank.
    6. Márcio Holland, 2005. "Monetary And Exchange Rate Policy In Brazil After Inflation Targeting," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 032, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    7. Sánchez, Marcelo, 2009. "Characterising the inflation targeting regime in South Korea," Working Paper Series 1004, European Central Bank.
    8. Lee, Chien-Chiang & Chen, Mei-Ping & Chang, Chi-Hung, 2014. "Industry co-movement and cross-listing: Do home country factors matter?," Japan and the World Economy, Elsevier, vol. 32(C), pages 96-110.
    9. Thomas Willett & Eric M.P. Chiu & Sirathorn (B.J.) Dechsakulthorn & Ramya Ghosh & Bernard Kibesse & Kenneth Kim & Jeff (Yongbok) Kim & Alice Ouyang, 2011. "Classifying international aspects of currency regimes," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(4), pages 288-303, November.
    10. Christina Christou & Ruthira Naraidoo & Rangan Gupta & Won Joong Kim, 2017. "Monetary Policy Reaction Functions of the TICKs: A Quantile Regression Approach," Working Papers 201738, University of Pretoria, Department of Economics.
    11. Jahyun Koo & Ivan Paya & David A. Peel, 2012. "The Bank of Korea's nonlinear monetary policy rule," Applied Economics Letters, Taylor & Francis Journals, vol. 19(12), pages 1193-1202, August.

    More about this item

    Keywords

    exchange rate; inflation targeting; monetary policy; South Korea;

    JEL classification:

    • F10 - International Economics - - Trade - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4676. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.