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Inflation Targeting and Exchange Rate Management in Korea

Author

Listed:
  • Park, Won-Am

    (Hongik University)

Abstract

This paper investigates the experience of inflation targeting in Korea with an emphasis on exchange rate management. The Korean call rate responded to not only expected inflation, but also to output gap and changes in the real effective exchange rate of the Korean won, when we estimated the call rate reaction function over the period of 1999-2007. It was found that the call rate responded to changes in real effective exchange rate more than it did to expected inflation. We also examined whether Korean inflation targeting was actually centered on the exchange rate by estimating the Singaporean style of exchange rate reaction function. It was found that Korean monetary policy was not exchange-rate- centered, since the nominal effective exchange rate of the Korean won responded modestly to inflation and output gap, far less than did the Singaporean dollar.

Suggested Citation

  • Park, Won-Am, 2008. "Inflation Targeting and Exchange Rate Management in Korea," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 12(1), pages 157-188, June.
    • Handle: RePEc:ris:eaerev:0140
    DOI: 10.11644/KIEP.JEAI.2008.12.1.183
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    Citations

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    Cited by:

    1. 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.
    2. Hyeongwoo Kim & Wen Shi & Kwang-Myoung Hwang, 2016. "Estimating interest rate setting behaviour in Korea: a constrained ordered choices model approach," Applied Economics, Taylor & Francis Journals, vol. 48(23), pages 2199-2214, May.
    3. 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

    Inflation Targeting; Exchange Rate Centered Monetary Policy; Call Rate Reaction Function; BBC; Real Effective Exchange Rate;
    All these keywords.

    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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