The Korean Journal of Economic Studies
Identifying Monetary Policy Shocks Using High Frequency Data: Evidence from Korea -Focusing on the Central Bank Information Effect Contained in Monetary Policy-
JoongSeop Ahn (Bank of Korea), JooWan Kim (Bank of Korea) and ByungHo Lee (Bank of Korea)Year 2021Vol. 69No. 4
AbstractThis paper analyzes the effect of monetary policy using high frequency data of the financial market on the day of the Bank of Korea MPB's policy-settingmeetings. We calculated “Surprise” of the financial market which occurred immediately after the announcement of the Bank of Korea Base Rate. Then weidentified monetary policy shocks by purging the “Central Bank Information Effect” from the Surprise following Jarociński and Karadi (2020). We found thatthe monetary policy shock contracted the real economy, while the information shock expanded the real economy. These results imply that despite concernsabout the effect of monetary policy raised after the Global Financial Crisis, the transmission of monetary policy in Korea is still valid.