1. Discussion on “Monetary Policy of the Bank
of Korea During the First Sixty Years”
by Kyungsoo Kim and Jaewoo Lee
Woon Shin
Bank of Korea
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2. Outline of Kim&Lee(2010) • Overview of the History
- War and its aftermath (1950~1962/65)
- Big Push (1962/65~1983/85)
- Liberalization (1983/85~1998)
- Open Macro-economy
• Global Crisis and Future Challenges
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3. Era of Mobilization (1962~early 1980s)
• Role of BOK : agent of economic development
- Mobilization of domestic savings
- Allocation of credit to preferred sectors
: light industry → heavy and chemical industry
- Central Planner
: Drafting “Economic Development Plan”(1961)
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4. Era of Mobilization (1962~early 1980’s)
• Achieved high economic growth
- GDP growth rate : 9.0% (1962 ~ 1983)
• But at the cost of
- Price stability : CPI inflation 14.3% (1966 ~ 1983)
- Financial market development
- Independence of BOK
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5. • Economic imbalances resulted from growth- oriented economic policies
Stabilization & Liberalization (mid 1980s ~ 1998)
• Economic imbalances resulted from growth-
oriented economic policies
- M2 growth rate over 40% in the early 1980s
- CPI inflation over 30% in the early 1980s
- Current account deficit over 1 bil. US dollars each year
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6. • Monetary policy began to turn to its attention to
Stabilization & Liberalization (mid 1980s ~ 1998)
• Monetary policy began to turn to its attention to
economic stabilization.
- BOK gradually reduced its monetary target growth rates CPI inflation fell to a level of 2~3%
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7. • In line with economic stabilization, BOK
Stabilization & Liberalization (mid 1980s ~ 1998)
• In line with economic stabilization, BOK
actively pursued financial liberalization.
- privatization of commercial banks (1981~1983)
- Interest rate liberalization (1991~1995)
- deregulation of forex market
• Asian currency crisis in 1997
- Liberalization : harbinger of crisis?
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8. Inflation Targeting (1998 ~ )
• Introduction of Inflation Targeting
before after 1998
- objective(s) monetary stability price stability
development of banking/credit system
economic development
- intermediate target M2
- operating target reserve money short-term interest rate
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9. Inflation Targeting (1998 ~ )
• Change in the Conduct of Monetary Policy
- simple regression
policy indicator = constant
+ a*policy indictor(-1Q)
+ b*(inflation – trend inflation)
+ c*(growth rate – trend growth rate)
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10. Inflation Targeting (1998 ~ )
(1985~1996)
call = call(-1Q) (π- πtrend) (y- ytrend)
(0.05) (0.55)
m0 = m0(-1Q) – 0.27(π- πtrend) – 0.97(y- ytrend)
(0.65) (0.06)
(1999~2008)
call = call(-1Q) (π- πtrend) (y- ytrend)
(0.07) (0.01)
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11. Inflation Targeting (1998 ~ )
• Inflation targeting and price stability
1989~ ~2009
- level : % → %
- S.D : →
- Persistence : →
(AR coefficient)
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12. Inflation Targeting (1998 ~ )
• Inflation expectations were well anchored
around the inflation target.
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13. Recent Crisis and Challenges
• Negative supply shocks
- IT and Great Moderation: success or luck?
• Price vs. Financial Stability
- Whether and how to respond to financial imbalances?
- Lack of instrument
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