Document Type
Article
Publication Date
12-1-2017
Publication Title
Pacific Economic Review
Abstract
This paper explores the impact of the adoption of inflation targeting (IT) on the dynamics of city-level inflation in Korea using both aggregate and sector-level data. When looking at aggregate regional inflation, we find that the mean, volatility and persistence fell in all cities in the wake of the monetary policy regime change, consistent with other evidence in the literature. Delving more deeply into the disaggregate data reveals additional insights however. For most of the changes we observe in the dynamics of regional inflation, we find that the aggregate effects are being driven primarily by sectors that fall into the ‘Services’ category. We posit that the impact of better anchored inflationary expectations is primarily on the less-traded services sectors of the economy, where the domestic monetary policy framework has a relatively larger influence. When it comes to the increased co-movement observed across regions under an IT regime, however, it is the ‘Commodities’ sectors rather than ‘Services’ that are responsible, probably because services inflation becomes relatively more influenced by local factors once it has stabilized within the target range. Therefore, adoption of IT may not necessarily increase all measures of regional synchronization even when the goal of better-anchored inflationary expectations is achieved.
Volume
22
Issue
5
First Page
814
Last Page
840
DOI
10.1111/1468-0106.12121
ISSN
1361374X
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Rights
Licensed to Smith College and distributed CC-BY under the Smith College Faculty Open Access Policy.
Recommended Citation
Choi, Chi Young; Lee, Joo Yong; and O'Sullivan, Róisín, "Monetary Policy Regime Change and Regional Inflation Dynamics: Looking Through the Lens of Sector-Level Data for Korea" (2017). Economics: Faculty Publications, Smith College, Northampton, MA.
https://scholarworks.smith.edu/eco_facpubs/59
Comments
Peer reviewed accepted manuscript.