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Corresponding Author:
Marco Tronzano, Università degli Studi di Genova, Dipartimento di Economia e Metodi Quantitativi, Genova, Italia

Does the Expectations Hypothesis of the Term Structure Hold in Korea after the Asian Financial Crisis? Some Empirical Evidence (1999-2017)

Volume 71 - Issue 2, May 2018
(pp. 191-226)
JEL classification: C1, E43, E52
Keywords: Term Structure of Interest Rates, Expectations Hypothesis, Asian Emerging Markets, South Korea, Cointegration, Monetary Policy

Abstract

This paper explores the validity of the Expectations Hypothesis of the Term Structure (EHTS) in Korea after the 1997-1998 Asian financial crisis. In line with the EHTS, one common stochastic trend is found in the term structure of interest rates, although the validity of the “symmetry” restriction is rejected. Moreover, significant liquidity premia and a causal relationship from long to short-term interest rates are documented. The main policy implications are that monetary policy should be implemented in a gradual manner, and putting greater emphasis on the expectations channel through which agents anticipate its future path.

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Does the Expectations Hypothesis of the Term Structure Hold in Korea after the Asian Financial Crisis? Some Empirical Evidence (1999-2017)

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