ABSTRACT
This chapter discussed Korea's post-crisis monetary policy, focusing on whether the high interest rate policy adopted immediately after the outbreak of the crisis was effective in stabilizing the exchange rate. And whether post-crisis interest rate policy can be justified in light of the literature on optimal monetary policy. While it is impossible to determine conclusively whether tight money was effective in stabilizing the exchange rate, if there is any country in Asia for which the policy worked, that country was Korea. The high interest rate policy maintained in the first quarter of 1998 can be justified if the actual inflation rate as opposed to the expected inflation rate is used. The low interest rate policy in place since 1999 can be justified if the GDP deflator rather than the core consumer price index (CPI) is used. But whatever uncertainty remains about the advisability of raising interest rates to observed heights in the first quarter of 1998.
