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A monetary policy feedback rule in Korea's fast-growing economy

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  • A monetary policy feedback rule in Korea's fast-growing economy
  • Dueker, Michael; KIm, Gyuhan
  • Federal Reserve Bank of St. Louis


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Title A monetary policy feedback rule in Korea's fast-growing economy
Similar Titles
Material Type Reports
Author(English)

Dueker, Michael; KIm, Gyuhan

Publisher

St. Louis:Federal Reserve Bank of St. Louis

Date 1998-09
Series Title; No Working Paper Series / 1998-014A
Journal Title; Vol./Issue Journal of International Financial Markets:
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Economic Conditions
Economy < Economic Administration
Holding Federal Reserve Bank of St. Louis

Abstract

In Korea’s high-growth economy, the Bank of Korea had been willing to tolerate double digit inflation, provided that it remained at ‘non-explosive’ levels. In this article, we estimate a monetary policy feedback rule for Korea and find that the upper threshold of tolerable inflation for the Bank of Korea was about 20 percent. It appears that the Bank of Korea’s disciplined, rule-like approach to monetary policy was able to control inflation and keep it away from explosive levels, despite the well-known empirical regularity that inflation becomes more variable at higher levels. After 1983, however, our regime-switching model suggests that the inflation target has been six percent. We also find little evidence that the Bank of Korea has targeted real growth, except for a period in the mid-1980s when industrial production growth suggested that the economy was overheating, relative to an implicit growth target of7.4 percent. (The rest omitted)