{
  "title": "Strengthening the Monetary Policy Framework in Korea",
  "publication": "IMF Working Papers, May 10, 2019",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2019/05/10/strengthening-the-monetary-policy-framework-in-korea-46835",
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  "summary": "Adoption of inflation targeting by the Bank of Korea (BOK) in 1998 contributed to low and stable inflation. However, after the global financial crisis (GFC) monetary policy faced more challenging conditions.",
  "sections": [
    {
      "heading": "Background and motivation",
      "content": "- Adoption of inflation targeting by the Bank of Korea (BOK) in 1998 contributed to low and stable inflation.\n- After the global financial crisis (GFC), monetary policy faced more challenging conditions.\n- Inflation slipped below the target range in 2012 and remains below it despite a cut in the target to 2 percent in 2016.\n- The central bank’s mandate became more complex with the addition of financial stability."
    },
    {
      "heading": "Key findings and analysis",
      "content": "- Monetary policy effectiveness has been undermined by prolonged below-target inflation and a broader mandate that includes financial stability.\n- A macro model calibrated to Korea can be used to simulate policy and provide a medium-term focus on achieving the inflation target.\n- Enhanced communication, supported by a forecasting and policy analysis system, can improve the Bank of Korea’s ability to achieve its inflation objective over the medium term."
    },
    {
      "heading": "Policy recommendations",
      "content": "- Two-pronged approach:\n  - Enhanced communication on how the target will be achieved over the medium-term, building on a forecasting and policy analysis system.\n  - Clarify the complementary role of macroprudential policy in containing financial stability risks so that monetary policy can focus on the inflation target.\n- Use model-based simulation and forecasting to strengthen medium-term focus and public communication around the inflation target."
    },
    {
      "heading": "Simulation and tools",
      "content": "- Simulation of a macro model calibrated to Korea illustrates how model-based analysis can:\n  - Provide greater medium-term focus on achieving the inflation target.\n  - Strengthen communication of policy intentions and expected paths."
    },
    {
      "heading": "Subject coverage and keywords",
      "content": "- Subjects: Central bank policy rate; Financial sector policy and analysis; Financial sector stability; Financial services; Inflation; Inflation targeting; Monetary policy; Output gap; Prices; Production.\n- Keywords: Central bank policy rate; Financial sector stability; GFC monetary policy; Global; Inflation; inflation targeting; inflation targeting performance; Korea; monetary policy; monetary policy decision; monetary policy effectiveness; Output gap; output gap equation; policy rate; policy reaction; quadratic monetary policy reaction function; rate; rate cut; reaction function; WP.\n\nSource: \"Strengthening the Monetary Policy Framework in Korea\", Kevin Clinton; R. S Craig; Douglas Laxton; Hou Wang; May 10, 2019 (IMF Working Papers 2019, 103).\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2019/05/10/strengthening-the-monetary-policy-framework-in-korea-46835"
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    "Authors: Kevin Clinton, R. S Craig, Douglas Laxton, Hou Wang",
    "Published: May 10, 2019",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781498312226.001",
    "Adoption of inflation targeting by the Bank of Korea (BOK) in 1998 contributed to low and stable inflation.",
    "After the global financial crisis (GFC), monetary policy faced more challenging conditions.",
    "Inflation slipped below the target range in 2012 and remains below it despite a cut in the target to 2 percent in 2016.",
    "The central bank’s mandate became more complex with the addition of financial stability.",
    "Monetary policy effectiveness has been undermined by prolonged below-target inflation and a broader mandate that includes financial stability.",
    "A macro model calibrated to Korea can be used to simulate policy and provide a medium-term focus on achieving the inflation target.",
    "Enhanced communication, supported by a forecasting and policy analysis system, can improve the Bank of Korea’s ability to achieve its inflation objective over the medium term.",
    "Two-pronged approach:",
    "Use model-based simulation and forecasting to strengthen medium-term focus and public communication around the inflation target.",
    "Simulation of a macro model calibrated to Korea illustrates how model-based analysis can:",
    "Subjects: Central bank policy rate; Financial sector policy and analysis; Financial sector stability; Financial services; Inflation; Inflation targeting; Monetary policy; Output gap; Prices; Production.",
    "Keywords: Central bank policy rate; Financial sector stability; GFC monetary policy; Global; Inflation; inflation targeting; inflation targeting performance; Korea; monetary policy; monetary policy decision; monetary policy effectiveness; Output gap; output gap equation; policy rate; policy reaction; quadratic monetary policy reaction function; rate; rate cut; reaction function; WP.",
    "**Working Paper**"
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