Monetary Policy in Korea through the lense of Taylor Rule in DSGE model

This paper shows assessments on the monetary policy of Korea based on an estimated model. During the sample period of the in ation targeting scheme, the monetary policy discretion, which is the monetary policy shock after the historical decomposition of the model, has been mostly in ationary while it was reducing the volatility of output growth and thus countercyclical. 3% target rate could have been achieved when the monetary policy shock's standard deviation was approximately half of its posterior estimate. Various degree of monetary policy stance has been simulated with the sample period. An aggressive monetary policy towards in ation stabilization would have generally led to the average level of in ation rate closer to its target rate but at the cost of higher volatilities of the output growth.