This paper evaluates the effectiveness of monetary policy on stabilizing
inflation and output for the post-crisis era. The paper examines whether a
sizable moderation in inflation, observed in this period, is consistent with the
monetary policy of the Bank of Korea through its interest rate channel. Although
the inflation rates have been within the inflation target range of the central bank
for the post-crisis era, we find that such an empirical fact is not supported by the
interest rate feedback rule of the central bank (i.e., the policy rule does not seem
to have stabilized inflation). Instead, the BOK has focused more on moderating
fluctuations in real activities. Our empirical findings are robust to different
models, estimation methods and alternative measures of data. However, the
results are significantly different across the pre-crisis and post-crisis periods,
implying that the Korean economy had experienced a structural change.
Consequently, this paper argues that an empirical investigation with data,
including the financial crisis, may question its validity and may not characterize
the current Korean economy.