Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235947 
Authors: 
Year of Publication: 
2021
Citation: 
[Journal:] KDI Journal of Economic Policy [ISSN:] 2586-4130 [Volume:] 43 [Issue:] 2 [Publisher:] Korea Development Institute (KDI) [Place:] Sejong [Year:] 2021 [Pages:] 81-101
Publisher: 
Korea Development Institute (KDI), Sejong
Abstract: 
This paper estimates the expectation-augmented Phillips curve, which explains inflation dynamics, in Korea. The phenomenon of low inflation in Korea has been going on for quite some time, in particular since 2012. During the Covid-19 crisis, due to low inflation expectations the operation of monetary policy was limited as the base rate approached the zero lower bound. The main objective of this paper is to estimate where and how tightly inflation expectations are anchored. It was found that long-term inflation expectations fell to around 1%, falling short of the inflation target, and that inflation expectations are strongly anchored to long-term expectations, which implies that the low inflation phenomenon is likely to extend into the future. The results also imply that even if inflation fluctuates due to temporary disturbances, it may converge to a level below the inflation target. The slight rebound of long-term expectations during the Covid-19 crisis suggests that the aggressive monetary policy may have contributed to improving economic agents' beliefs about the commitment of monetary authorities to inflation stability. This may also help long-term expectations gradually to approach the inflation target.
Subjects: 
Inflation Expectations
Phillips Curve
Monetary Policy
JEL: 
E31
E42
E52
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-sa Logo
Document Type: 
Article

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