The Korean Journal of Economic Studies
Asymmetric Dynamic Impact of U.S. Interest Rates on the Korean Yield Curve
Hyun-Seok Jeong (Bank of Korea) and Kyu Ho Kang (Korea University)Year 2017Vol. 65No. 4
The recent rises of U.S. interest rates may influence on the domestic yieldcurve, and its impact is possibly asymmetric depending on the state of theeconomy. This paper examines asymmetric dynamic impact of U.S. interestrates on the Korean yield curve. To this end, we propose and estimate adynamic Nelson-Siegel model of interest rates with regime shifts and observedfactors by extending the approach of Diebold, Rudebusch, Aruoba(2006). Oureconometric approach is Bayesian. The estimation results based on themonthly data since 2001 can bs summarized as follows. First, the regimes ofthe Korean yield curve dynamics are identified as low and high volatility states.Second, the U.S. short-term interest has little impact on the shape of theKorea yield curve. Third, the Korean yield curve is substantially influenced bythe U.S. long-term interest rate during the high volatility state. Specifically,1%p U.S. long-term interest rate shock increases the Korean long-terminterest rate by 0.3%p. We believe that our work contributes to the literatureby providing a quantitative analysis on the U.S. tapering policy, and providespredictive yield curve information for monetary policy.