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Evaluating Exchange Rate Management An Application to Korea

Author

Listed:
  • David Parsley

    (Vanderbilt University, Hong Kong Institute for Monetary Research)

  • Helen Popper

    (Santa Clara University, Hong Kong Institute for Monetary Research)

Abstract

This paper uses data-rich estimation techniques to study monetary policy in an open economy. We apply the techniques to a small, forward-looking model and explore the importance of the exchange rate in the monetary policy rule. This approach allows us to discern whether a monetary authority targets the exchange rate per se, or instead simply responds to the exchange rate in order to achieve its other objectives. The approach also removes a downward bias on the estimate of the extent of inflation targeting. We find that this bias is important in the case of Korea, a de jure inflation targeter. In contrast to previous studies, our findings suggest that the Bank of Korea actively targets inflation, not the exchange rate. Apparently, the exchange rate has been only indirectly important in Korea's monetary policy.

Suggested Citation

  • David Parsley & Helen Popper, 2009. "Evaluating Exchange Rate Management An Application to Korea," Working Papers 282009, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:282009
    as

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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Jounghyeon Kim, 2012. "Monetary and Exchange Rate Policy in the Aftermath of the Asian Financial Crisis: The Case of Korea," Korean Economic Review, Korean Economic Association, vol. 28, pages 91-116.
    2. Antonio Forte, 2010. "The European Central Bank, the Federal Reserve and the Bank of England: Is the Taylor Rule a useful benchmark for the last decade?," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 53(2), pages 1-31.
    3. 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.

    More about this item

    Keywords

    Exchange Rates; Exchange Rate Management; Monetary Policy Rule; Inflation Targeting; Exchange Rate Regimes; Exchange Rate Classification; Factor Instrumental Variables;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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