| This thesis considers the 'fear of floating' hypothesis in the case of Korea by examining the effects of monetary policy and exchange rate shocks across two periods: from March 1990 to September 1997 (soft-peg), and from January 1999 to March 2009 (inflation targeting). To analyze the transmission of monetary policy and exchange rate shocks, the thesis uses structural vector autoregressions with short-run restrictions. The results show that relative to the soft-peg period, monetary policy shocks cause greater fluctuations in output and the exchange rate in the second period, which are consistent with a flexible exchange rate regime under inflation targeting adopted after 1998. Furthermore. during inflation targeting, exchange rate shocks cause wider fluctuations in output, suggesting Korea's vulnerability to exchange rate shocks with the adoption of inflation targeting. |
