Author: Woo Joon Myung(Bank of Korea)

Abstract

  Recent studies show that a monetary policy stance is an immediate determinant of inflation persistence. This paper  shows how inflation persistence has changed over time and whether monetary policy stance plays an important role of determining inflation persistence.
  First, we estimate how inflation persistence has  changed over time by using various models, including regime-switching ADF models and time-varying- parameter models. The results show that inflation for the period from the late 70s to the early 80s and during the foreign currency crisis in the late 90s has been relatively high with the persistence coefficient close to 1.
  In addition, the monetary policy stance represented by a Taylor-type rule has been more aggressive against inflation since 2000 when both inflation and its persistence were stable and low. Also, inflation persistence rather rises with macroeconomics instability under passive monetary policy.