Inflation Targeting in Korea: An Empirical Exploration

The revised Bank of Korea (BOK) Act states that the primary goal of monetary policy is price stability and recently monetary policy has moved toward an inflation targeting framework. This study explores some of the practical aspects that need to be considered for this move. In particular, issues such as the definition of the price index, the horizon over which to target inflation, and the width of the inflation target bands are considered. On balance, the empirical evidence suggests that Korea is likely to be successful in adopting an IT framework over the medium term.