The Drivers of Inflation in Korea: Insights from a Small Open DSGE Model
This study analyzes the drivers of inflation in South Korea using a Dynamic Stochastic General Equilibrium (DSGE) model tailored to the characteristics of Korea as a small open economy. Employing quarterly data from 1999Q2 to 2023Q2, Bayesian estimation is used to estimate Korea-specific parameters....
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| Format: | Article |
| Language: | English |
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Korea Institute for International Economic Policy
2025-03-01
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| Series: | East Asian Economic Review |
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| Online Access: | https://dx.doi.org/10.11644/KIEP.EAER.2025.29.1.444 |
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| Summary: | This study analyzes the drivers of inflation in South Korea using a Dynamic Stochastic General Equilibrium (DSGE) model tailored to the characteristics of Korea as a small open economy. Employing quarterly data from 1999Q2 to 2023Q2, Bayesian estimation is used to estimate Korea-specific parameters. Based on the estimated parameters, impulse response analysis and historical decomposition are conducted. The results indicate that cost-push shocks tied to imported goods pricing have been the primary driver of recent inflation surges in Korea. Accordingly, policymakers need to adopt a comprehensive approach—including not only monetary policy but also macroprudential measures and raw material supply management—to mitigate supply-side inflationary pressures effectively. |
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| ISSN: | 2508-1640 2508-1667 |