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Structural changes and the scope of inflation targeting in Korea

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  • Structural changes and the scope of inflation targeting in Korea
  • Choi, Gongpil
  • Federal Reserve Bank of San Francisco


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Title Structural changes and the scope of inflation targeting in Korea
Similar Titles
Material Type Reports
Author(English)

Choi, Gongpil

Publisher

[San Francisco]:Federal Reserve Bank of San Francisco

Date 2001-07
Series Title; No Pacific Basin Working Paper Series / PB01-05
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Economic Conditions
Economy < Economic Administration
Holding COnnecting REpositories

Abstract

A small, open macroeconomic model that accounts for new financial accelerator effects (the effects of fluctuations in asset prices on bank credit and economic activity) is developed to evaluate various policy rules for inflation targeting. Given conditions in asset markets and the fragility of the financial sector, monetary policy responses can potentially amplify the financial accelerator effect. Simulations are used to compare various forms of inflation targeting using a model that emphasizes long-term inflation expectations, output changes, and the asset price channels. The simulations suggest that a successful outcome can be obtained by adhering to simple forward-looking simple rules, rather than backward-looking policy rules. Furthermore, inflation targeting can contribute to price as well as output stability by helping to keep the financial accelerator from being activated. Inflation targeting in emerging economies can provide an environment conducive to long-term capital market development.