Sectoral Heterogeneity in Nominal Rigidities in Korea: Implications for Monetary Policy

Seula Kim and Jae Won Lee
Additional contact information
Seula Kim: University of Maryland

Korean Economic Review, 2020, vol. 36, 59-99

Abstract: This paper documents how the frequency of price changes differs across sectors in Korea and what implications such heterogeneity may have for monetary policy. Under heterogeneity, i) monetary policy has larger and more persistent real effects, ii) stabilizing an alternative (optimal) price index that places disproportionately larger weights on “sticky”sectors rather than the consumer price index is welfare improving, iii) the central bank,targeting such an alternative index, should move nominal interest rates slowly, which may justify “gradualism” in monetary policy, and iv) the condition for equilibrium determinacy is different. The results suggest that the monetary authority must consider how firms’ pricing behaviors differ across sectors in the design of monetary policy.

Keywords: Heterogeneity; Price Stickiness; Multiple Sectors; DSGE Model; Monetary Policy; Economy of Korea (search for similar items in EconPapers)
JEL-codes: C51 E13 E31 E32 E44 J20 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://keapaper.kea.ne.kr/RePEc/kea/keappr/KER-20200101-36-1-03.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kea:keappr:ker-20200101-36-1-03

Access Statistics for this article

Korean Economic Review is currently edited by Kyung Hwan Baik

More articles in Korean Economic Review from Korean Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by KEA ().