The Monetary Institution Change and Policy Performance - Focusing on the Korean Case after the 1997 Financial Crisis -
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This article analyzes the monetary policy mechanism of South Korea after the establishment of central bank independence. This article addresses why the Independent central bank has had a flexible policy performance under the cooperation with governments in developing countries since they have adopted the independence. The independent Bank of Korea cooperated with the government and had good policy performance through the flexible application of a dual agreements structure system. The institution of monetary policy after the foreign exchange crisis organized the conflict structure between the central bank and the government. South Korea designated that the main purpose of the Bank of Korea was domestic price stabilization in 1998 after the foreign exchange crisis that resulted from International Monetary Fund conditionality. The control method of exchange rates changed into the floating exchange rate system as a result of the changes. The Bank of Korea set monetary policy focusing on domestic price stability, whereas the government decided on economic policy focusing on stable exchange rates for foreign trade and business. South Korea did flexible institutional change and performance through dual agreements structure. This article argues that South Korea made the dual agreements structure for the cooperation between the central bank and the government despite the pressure of IMF. And, this article argues that central banks, not overcome the governments in domestic debates, tend to operate flexible policy performance for the prestige and self-preservation after independence.
Abstract
This article analyzes the monetary policy mechanism of South Korea after the establishment of central bank independence. This article addresses why the Independent central bank has had a flexible policy performance under the cooperation with governments in developing countries since they have adopted the independence. The independent Bank of Korea cooperated with the government and had good policy performance through the flexible application of a dual agreements structure system. The institution of monetary policy after the foreign exchange crisis organized the conflict structure between the central bank and the government. South Korea designated that the main purpose of the Bank of Korea was domestic price stabilization in 1998 after the foreign exchange crisis that resulted from International Monetary Fund conditionality. The control method of exchange rates changed into the floating exchange rate system as a result of the changes. The Bank of Korea set monetary policy focusing on domestic price stability, whereas the government decided on economic policy focusing on stable exchange rates for foreign trade and business. South Korea did flexible institutional change and performance through dual agreements structure. This article argues that South Korea made the dual agreements structure for the cooperation between the central bank and the government despite the pressure of IMF. And, this article argues that central banks, not overcome the governments in domestic debates, tend to operate flexible policy performance for the prestige and self-preservation after independence.
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