The effects of inflation targeting on price stability: The case of South Korea

Eun-Son Lim

Journal of Asian Economics, 2025, vol. 100, issue C

Abstract: South Korea adopted inflation targeting (IT) in April 1998 to enhance price stability. While prior research has largely examined the impact of IT through average inflation, volatility, or persistence, this study shifts the focus to a more policy-relevant metric: high inflation episodes (HIEs), defined as periods when inflation exceeds 3 % for at least one quarter, as followed by Guo and Lim (2024). Using survival analysis on disaggregated CPI data from 1990:Q1 to 2024:Q4 covering 39 items and three different sectors- industrial goods, service and agricultural and marine products, this study assesses whether IT has reduced the duration of HIEs. The results show that IT significantly shortens HIE durations overall, with especially strong effects in services and industrial goods. In contrast, the duration of HIEs in agricultural and marine products remains largely unaffected. Notably, services—which carry the highest weight in the CPI—experience the greatest reduction in HIE duration, underscoring IT’s asymmetric effectiveness across sectors. This study offers new evidence of the effectiveness of IT in South Korea by adopting a novel approach that emphasizes the duration of HIEs, addresses aggregation bias, and accounts for sectoral heterogeneity. These findings suggest that IT frameworks should be designed with sector-specific responsiveness. In advanced economies like South Korea, managing expectations in service-related prices can enhance price stability. For emerging and developing economies, where food and energy carry larger CPI weights, IT may require stronger expectation management and targeted supply-side interventions. Strengthening central bank independence can further support IT credibility and reduce HIE durations, particularly where institutional constraints are present.

Keywords: Inflation targeting; High Inflation Episode (HIE); Price stability; Survival analysis (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1049007825001137
Full text for ScienceDirect subscribers only

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:eee:asieco:v:100:y:2025:i:c:s1049007825001137

DOI: 10.1016/j.asieco.2025.101989

Access Statistics for this article

Journal of Asian Economics is currently edited by C. Wiemer

More articles in Journal of Asian Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().