This study provides robust evidence on how the choice of the policy instrument for monetary policy influences its impact on economic activity. We study the case of South Korea for the period 1980-2017. We use FAVAR models that allow a comprehensive exploration of different areas of economic activity by overcoming limitations on a number of variables that can be included in the analysis in a traditional VAR model. Following the actual use of instruments, we test the effectiveness of monetary policy in two separate periods: 1980-1999, when the Bank of Korea mostly used M2 as the policy instrument; and then 2000-2017, when interest rate was the policy instrument. Our results show that monetary policy that uses interest rate as the policy instrument is markedly more effective in economic activity than M2. This is observable in the reaction from prices as well as variables that measure industrial production. In contrast, the impact of M2 mostly occurs in prices and it is short lived. We use robustness checks that switch the use of instrument for each subperiod and also test the use of each policy instrument for the entire period of analysis. The results hold, interest rates as policy instrument of monetary policy are more effective than M2.

中文翻译：

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货币政策的有效性是否取决于政策工具的选择？来自韩国的经验证据

这项研究为货币政策的政策工具的选择如何影响其对经济活动的影响提供了有力的证据。我们研究了 1980-2017 年期间韩国的案例。我们使用 FAVAR 模型，通过克服传统 VAR 模型分析中可以包含的许多变量的限制，可以全面探索经济活动的不同领域。跟随工具的实际使用，我们在两个不同的时期检验货币政策的有效性：1980-1999年，韩国银行主要使用M2作为政策工具；然后是 2000-2017 年，当时利率是政策工具。我们的结果表明，以利率为政策工具的货币政策在经济活动中的有效性明显高于 M2。这可以从价格以及衡量工业生产的变量的反应中观察到。相比之下，M2的影响主要体现在价格上，而且是短暂的。我们使用稳健性检查来切换每个子时期工具的使用，并测试每个政策工具在整个分析期间的使用情况。结果表明，利率作为货币政策的政策工具比M2更有效。