The Drivers of Inflation in Korea: Insights from a Small Open DSGE Model

Kyunghun Kim ()
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Kyunghun Kim: Hongik University, https://orcid.org/0000-0002-8905-9089

East Asian Economic Review, 2025, vol. 29, issue 1, 41-76

Abstract: This study analyzes the drivers of inflation in South Korea using a Dynamic Stochastic General Equilibrium (DSGE) model tailored to the characteristics of Korea as a small open economy. Employing quarterly data from 1999Q2 to 2023Q2, Bayesian estimation is used to estimate Korea-specific parameters. Based on the estimated parameters, impulse response analysis and historical decomposition are conducted. The results indicate that cost-push shocks tied to imported goods pricing have been the primary driver of recent inflation surges in Korea. Accordingly, policymakers need to adopt a comprehensive approach—including not only monetary policy but also macroprudential measures and raw material supply management—to mitigate supply-side inflationary pressures effectively.

Keywords: Inflation; Dynamic Stochastic General Equilibrium; Bayesian Estimation; Cost-push Shocks (search for similar items in EconPapers)
JEL-codes: C11 E31 E32 F41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0444

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