Monetary and Exchange Rate Policy in the Aftermath of the Asian Financial Crisis: The Case of Korea

Jounghyeon Kim
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Jounghyeon Kim: Korea University

Korean Economic Review, 2012, vol. 28, 91-116

Abstract: This paper extends the structural VAR model of Bernanke and Mihov (1998) to one under a small-open economy in order to explore how the operating procedures of the monetary and foreign exchange policy in Korea changed in the aftermath of the 1997 Asian financial crisis. It finds strong evidence of apparent regime changes in the monetary and exchange rate policy after the financial crisis. The implications for monetary policy in Korea are that the operating procedure switched to a call rate target in the post-crisis period, but that its stance on monetary policy may remain in transition under an inflation targeting framework and a freely floating exchange rate regime. Moreover, the exchange rate presumably plays an important role in monetary policy or as an intermediate monetary policy target in order to stabilize prices.

Keywords: Monetary Policy; Exchange Rate Policy; Asian Financial Crisis; Structural VAR model (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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