Inflation Targeting and Exchange Rate Management in Korea

Won-Am Park ()
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Won-Am Park: Hongik University

East Asian Economic Review, 2008, vol. 12, issue 1, 157-188

Abstract: This paper investigates the experience of inflation targeting in Korea with an emphasis on exchange rate management. The Korean call rate responded to not only expected inflation, but also to output gap and changes in the real effective exchange rate of the Korean won, when we estimated the call rate reaction function over the period of 1999-2007. It was found that the call rate responded to changes in real effective exchange rate more than it did to expected inflation. We also examined whether Korean inflation targeting was actually centered on the exchange rate by estimating the Singaporean style of exchange rate reaction function. It was found that Korean monetary policy was not exchange-rate- centered, since the nominal effective exchange rate of the Korean won responded modestly to inflation and output gap, far less than did the Singaporean dollar.

Keywords: Inflation Targeting; Exchange Rate Centered Monetary Policy; Call Rate Reaction Function; BBC; Real Effective Exchange Rate (search for similar items in EconPapers)
JEL-codes: E47 E52 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0140

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