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Title: |
Structural Changes and the Scope of Inflation
Targeting in Korea |
| Author: |
Choi, Gongpil |
| Author
Affiliation: |
Korea Institute
of Finance |
| Source: |
International Economic Journal, Autumn 2003, v. 17, no. 3, pp. 113-142 |
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Publication Date: |
Autumn 2003 |
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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 the conditions of 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 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. |
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