Can Korea Protect Itself from International Capital Flows: Estimates of Monetary Sterilization

Seh-Beom Koo ()
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Seh-Beom Koo: Institute for Global Economics, South Korea

Journal of Economic Development, 2024, vol. 49, issue 2, 139-157

Abstract: The study investigates the external influences on Korea’s monetary policy over the period from 1990 to 2020. The focus is on the effects of US interest rates, payments imbalances and exchange rate changes on Korean monetary policy. The estimation of the Taylor rule measures the effects on Korean interest rates and the estimation of sterilization/ offset coefficients measures the effects on the domestic money supply and monetary base. This study measures the sterilization/offset equations and compares the results with the ones from Koo (2004) which examines the Taylor rule study. The empirical tests of both studies reveal two key findings: (1) Korean monetary policy has been influenced by monetary developments in the US, but it still has had a good deal of independence. (2) The exchange rate plays a crucial role for the BOK in achieving independent monetary policy.

Keywords: Korean Monetary Policy; US Interest Rates; Sterilization and Offset Coefficients; Exchange Rate; Korean Interest Rate (search for similar items in EconPapers)
JEL-codes: D78 E52 F30 G01 (search for similar items in EconPapers)
Date: 2024
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