A monetary policy feedback rule in Korea's fast-growing economy
In Korea's high-growth economy, the Bank of Korea had been willing to tolerate double-digit inflation, provided that it remained at "non-explosive" levels. In this article, we estimate a monetary policy feedback rule for Korea and find that the upper threshold of tolerable inflation for the Bank of Korea was about 20 percent. It appears that the Bank of Korea's disciplined, rule-like approach to monetary policy was able to control inflation and keep it away from explosive levels, despite the well-know empirical regularity that inflation becomes more variable at higher levels. After 1983, however, our regime-switching model suggests that the inflation target has been six percent. We also find little evidence that the Bank of Korea has targeted real growth, except for a period in the mid-1980s when industrial production growth suggested that the economy was overheating, relative to an implicit growth target of 7.4 percent. We conclude with a discussion of possible reasons for Korea to choose to stabilize inflation at lower levels since the mid-1980s.
|Date of creation:||1998|
|Date of revision:|
|Publication status:||Published in Journal of International Financial Markets, Institutions and Money, January 1999|
|Contact details of provider:|| Postal: |
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael Dueker & Andreas M. Fischer, 1995.
"Inflation targeting in a small open economy: empirical results for Switzerland,"
1995-014, Federal Reserve Bank of St. Louis.
- Dueker, Michael & Fischer, Andreas M., 1996. "Inflation targeting in a small open economy: Empirical results for Switzerland," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 89-103, February.
- Bennett T. McCallum, 1993.
"Specification and Analysis of a Monetary Policy Rule for Japan,"
Monetary and Economic Studies,
Institute for Monetary and Economic Studies, Bank of Japan, vol. 11(2), pages 1-45, December.
- Bennett T. McCallum, 1993. "Specification and Analysis of a Monetary Policy Rule for Japan," NBER Working Papers 4449, National Bureau of Economic Research, Inc.
- Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:1998-014. 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: (Anna Xiao)
If references are entirely missing, you can add them using this form.