Inflation Differentials between Korea and 9 OECD Countries (in Korean)

Myung Kee Kim () and Ehung Gi Baek ()
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Myung Kee Kim: Sangmyung University Graduate School
Ehung Gi Baek: Department of Economics and Finance, Sangmyung University

Economic Analysis (Quarterly), 2012, vol. 18, issue 1, 31-60

Abstract: This paper analyses sources of the inflation differentials between Korea and 9 OECD countries: the G7, Australia and Spain. We estimate the backward-looking Phillips curve and aggregate demand equation for 10 OECD countries using the system GMM for the period of 2002-2010. In the Phillips curve, the estimated coefficients of inflation persistence, the output gap, the nominal effective exchange rate, and the comparative price level are both correctly signed and significant at the 1 percent level. In the aggregate demand equation, the policy interest rate influencing the GDP gap before the 2008 crisis appears to be insignificant after the crisis. The real effective exchange rate in contrast becomes significant after the crisis. The inflation differential between Korea and the average of the 10 OECD countries was 1.1 percentage point in 2010. The main sources of the differential were the relatively high inflation persistence and output gap of 2009 in Korea, compared to the averages of the 10 countries. However, the higher appreciation of the Korea Won has contributed to reducing the inflation differential.

Keywords: Dynamic Panel Model; System GMM; Inflation Persistence; Monetay Policy Rate; GDP gap (search for similar items in EconPapers)
JEL-codes: E31 E58 F00 (search for similar items in EconPapers)
Date: 2012
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