Author : Kwak Boreum(Bank of Korea), Shim Seri(Bank of Korea), Peter Tillmann(University of Giessen)

<Abstract>

We study the effect of time-varying disagreement among professional forecasters on the transmission of monetary policy in Korea, which has transitioned from an emerging to an advanced economy. We find that high levels of disagreement interfere with the transmission of monetary policy and, hence, weaken monetary policy effects. However, under low levels of disagreement, a monetary policy shock elicits textbook-like responses of inflation, expected inflation, and real activity. The findings are consistent with the view that disagreement affects the role of the signalling channel of monetary transmission relative to the conventional transmission channel. We also show that the dependence of the transmission on the level of disagreement remains intact even after controlling for time-varying monetary policy uncertainty and considering the shifts in the Bank of Korea’s inflation target type.