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Inflation Dynamics and Monetary Policy : Markov Switching Model Approach (in Korean)

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  • Woo Joon Myung

    (Economic Research Institute, The Bank of Korea)

Abstract

Recent studies show that a monetary policy stance is an immediate determinant of inflation persistence. This paper shows how inflation persistence has changed over time and whether monetary policy stance plays an important role of determining inflation persistence. First, we estimate how inflation persistence has changed over time by using various models, including regime-switching ADF models and time-varying- parameter models. The results show that inflation for the period from the late 70s to the early 80s and during the foreign currency crisis in the late 90s has been relatively high with the persistence coefficient close to 1. In addition, the monetary policy stance represented by a Taylor-type rule has been more aggressive against inflation since 2000 when both inflation and its persistence were stable and low. Also, inflation persistence rather rises with macroeconomics instability under passive monetary policy.

Suggested Citation

  • Woo Joon Myung, 2015. "Inflation Dynamics and Monetary Policy : Markov Switching Model Approach (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 21(4), pages 1-27, December.
    • Handle: RePEc:bok:journl:v:21:y:2015:i:4:p:1-27
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    More about this item

    Keywords

    Inflation persistence; Monetary policy; Markov switching model;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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