Inflation Targeting and Regional Inflation Persistence: Evidence from Korea

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: The adoption of a credible monetary policy regime such as inflation targeting is known to reduce the persistence of inflation fluctuations. This conclusion, however, is derived from aggregate inflation or sectoral inflation rates, not from regional inflation data. This paper studies the regional dimension of inflation targeting, i.e. the consequences of inflation targeting for regional inflation persistence. Based on data for Korean cities and provinces it is shown that the adoption of inflation targeting leads (i) to a fall in inflation persistence at the regional level and (ii) to a reduction in the cross-regional heterogeneity in inflation persistence. A common factor model lends further support to the role of the common component, and hence monetary policy, for regional inflation persistence. Terms of use: Documents in

Regional inflation, spatial locations and the Balassa-Samuelson effect: Evidence from Japan

“…The persistence in regional inflation is also consistent with experiences in other countries, e.g. the euro area (Beck et al, 2006), Italy (Vaona and Ascari, 2012) and Korea (Tillmann, 2013). We also calculate the direct and indirect effects of productivity growth on regional inflation; a direct effect is one where productivity growth influences its own inflation, and an indirect effect is one where productivity in other regions affects home inflation.…”

Monetary policy regime change and regional inflation dynamics: looking through the lens of sector‐level data for Korea

“…Moreover, there is also some evidence that a change in monetary regime can impact regional differences in inflation persistence (e.g. Meller and Nautz, ; Tillmann, ).…”

“…Little attention appears to have been paid to these regionally‐focused questions in the literature to date. A notable exception is Tillmann (), who uses aggregate regional price data to show that the adoption of IT in Korea was followed by a much more homogeneous inflation process across regions as measured by the cross‐regional standard deviation of persistence. We expand on that work by using an alternative measure of co‐movement and examining sectoral‐level data in addition to the aggregate series used in that study.…”

“…Kim and Park () provide an excellent general overview of the effect of IT adoption on Korea, but they use aggregate headline inflation only. Tillmann () studies extensively the impact of IT adoption at the regional level in Korea, but focuses on the response of inflation persistence at the aggregate level without considering sectoral‐level developments. In general, these studies conclude that IT was successful in stabilizing inflation in Korea, but not much is known about the extent to which this stabilization was felt broadly at a disaggregate level.…”

Convergence clustering in the Chinese provinces: New evidence from several macroeconomic indicators

“… There are also several studies that analyze the dynamics of regional inflation (prices) in other Asian countries; for example, see Chow () for Taiwan, Das and Bhattacharya () for India, Nagayasu () for Japan, and Tillmann () for the Korean Republic. …”