Title : Changes in Inflation Dynamics in Korea: Global Factor, Country Factor, and their Propagation

Author : Yun Jung Kim(Sogang University), Noh-Sun Kwark(Sogang University)

This study examines the influence of global and country factors on inflation movements in Korea using a multilevel factor model. Our results indicate that global factors were significant drivers of inflation in Korea during the high inflation era of the 1970s, as well as in recent periods following the COVID-19 pandemic. On the other hand, country factors played a crucial role in inflation during the Asian financial crisis. We construct structural models to identify global and country shocks and find that the effect of global shocks persists for longer periods of time, whereas the immediate impact of country shocks is more pronounced. Global shocks have a greater influence on producer price index and import price inflation compared to consumer price index (CPI) or core CPI inflation. We further find that energy prices closely correlate with global factors, while exchange rates are highly correlated with country factors in Korea.