Journal article

Publication year: 2012

Pages: 233-254

Journal: Seoul Journal of Economics

Volume number: 25

Issue number: 3

URL: http://www.sje.ac.kr/_common/do.php?a=full&b=3&bidx=2231&aidx=26429

Publisher: Seoul National University

Abstract: 

This paper studies the impact of inflation targeting on the evolution of inflation persistence and the effects of aggregation across expenditure categories. For this purpose we use disaggregate quarterly data on 12 major subcategories of the Korean CPI. We compare persistence in a sample covering 1986Q1-1997Q2 with persistence under inflation targeting between 1999Q1 and 2010Q2. The main results are threefold. First, the persistence of headline inflation as well as most CPI categories falls after the adoption of inflation targeting. Second, the evidence points to a large cross-sectional heterogeneity in the degree of inflation persistence. Third, while aggregation of heterogeneous categories induces additional persistence in the early part of the sample, a “reverse aggregation effect” is found in the second half: the persistence of the aggregate CPI inflation rate is significantly smaller than the average of persistence estimates across sectors. This is consistent with the Bank of Korea effectively stabilizing aggregate shocks under inflation targeting. Our paper provides the first evidence of disaggregate inflation persistence for an Asian emerging market economy.

Harvard Citation style: Tillmann, P. (2012) Inflation Targeting, Aggregation, and Inflation Persistence: Evidence from Korean CPI Components, Seoul Journal of Economics, 25(3), pp. 233-254. http://www.sje.ac.kr/_common/do.php?a=full&b=3&bidx=2231&aidx=26429

APA Citation style: Tillmann, P. (2012). Inflation Targeting, Aggregation, and Inflation Persistence: Evidence from Korean CPI Components. Seoul Journal of Economics. 25(3), 233-254. http://www.sje.ac.kr/_common/do.php?a=full&b=3&bidx=2231&aidx=26429