We examine empirically the co-movements of market rates between Koreaand the U.S., focusing on the yield curve, driven by the large-scalequantitative easing carried out by major advanced countries since the globalfinancial crisis. We extract major factors from the Korean and U.S. yieldcurves by employing the dynamic Nelson-Siegel model. After establishing atime-varying parameter VAR model, which deploys these factors as variables,we conduct a forecast-error variance decomposition analysis from a dynamicperspective. Our main results confirm that the effects of the U.S. yield curve’slevel factors on those of Korea have grown significantly since the globalfinancial crisis. This is particularly true for the impact of U.S. long-terminterest rates on three-year Korean government bond yields, as its explanatorypower exceeded 40% in 2014. Meanwhile, as for Korean short-term interestrates, we do not find any significant effects of U.S. long term interest rates.Our findings suggest that Korean long-term interest rates are likely to faceupward pressures from the rise in US long-term interest rates following themonetary policy normalization by the Federal Reserve Board. This mayincrease the volatility of Korean financial market by, for example, widening thespread between short- and long-term interest rates, which would in turn causeKorean yield curve to steepen. It is thus important to devise relevant policymeasures in response.