IV ECM Threshold Cointegration Tests and Nonlinear Monetary Policy in Korea
The goal of this paper is to examine the validity of nonlinear Taylor rules in Korea. To perform our tests, we utilize new IV ECM threshold cointegration tests that are invariant to nuisance parameters. The new tests have a standard chi-square distribution and the same critical values can be used th...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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Korea Development Institute
2007-12-01
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| Series: | KDI Journal of Economic Policy |
| Subjects: | |
| Online Access: | https://doi.org/10.23895/kdijep.2005.29.2.135 |
| _version_ | 1819265874547179520 |
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| author | Walter Enders Lee, Jun soo Marck C. Strazicich |
| author_facet | Walter Enders Lee, Jun soo Marck C. Strazicich |
| author_sort | Walter Enders |
| collection | DOAJ |
| description | The goal of this paper is to examine the validity of nonlinear Taylor rules in Korea. To perform our tests, we utilize new IV ECM threshold cointegration tests that are invariant to nuisance parameters. The new tests have a standard chi-square distribution and the same critical values can be used throughout. This is in contrast to OLS ECM threshold cointegration tests, which depend on nuisance parameters and have nonstandard distributions. After finding significant support for nonlinear cointegration, we find that the Bank of Korea raises the call rate of interest only when inflation is above a threshold rate. We additionally find that the Bank of Korea increases the call rate of interest to possibly counter domestic currency deprecation only when the rate of currency deprecation exceeds a threshold. |
| first_indexed | 2024-12-23T20:52:19Z |
| format | Article |
| id | doaj.art-d7c0fb39b6044dbd90364f55c3ef2fb2 |
| institution | Directory Open Access Journal |
| issn | 2586-2995 2586-4130 |
| language | English |
| last_indexed | 2024-12-23T20:52:19Z |
| publishDate | 2007-12-01 |
| publisher | Korea Development Institute |
| record_format | Article |
| series | KDI Journal of Economic Policy |
| spelling | doaj.art-d7c0fb39b6044dbd90364f55c3ef2fb22022-12-21T17:31:37ZengKorea Development InstituteKDI Journal of Economic Policy2586-29952586-41302007-12-0129213515710.23895/kdijep.2005.29.2.135IV ECM Threshold Cointegration Tests and Nonlinear Monetary Policy in KoreaWalter Enders0Lee, Jun soo1Marck C. Strazicich2Professor of Economics and Lee Bidgood Chair of Economics and Finance, University of AlabamaProfessor of Economics and Stimpson Gulf Lumber Faculty Fellow, University of AlabamaAssociate Professor, Department of Economics, Appalachian State UniversityThe goal of this paper is to examine the validity of nonlinear Taylor rules in Korea. To perform our tests, we utilize new IV ECM threshold cointegration tests that are invariant to nuisance parameters. The new tests have a standard chi-square distribution and the same critical values can be used throughout. This is in contrast to OLS ECM threshold cointegration tests, which depend on nuisance parameters and have nonstandard distributions. After finding significant support for nonlinear cointegration, we find that the Bank of Korea raises the call rate of interest only when inflation is above a threshold rate. We additionally find that the Bank of Korea increases the call rate of interest to possibly counter domestic currency deprecation only when the rate of currency deprecation exceeds a threshold.https://doi.org/10.23895/kdijep.2005.29.2.135Monetary Policy(통화정책)Korea(한국)Taylor Rule(테일러 룰)Threshold Cointegration(분계점 공적분) |
| spellingShingle | Walter Enders Lee, Jun soo Marck C. Strazicich IV ECM Threshold Cointegration Tests and Nonlinear Monetary Policy in Korea KDI Journal of Economic Policy Monetary Policy(통화정책) Korea(한국) Taylor Rule(테일러 룰) Threshold Cointegration(분계점 공적분) |
| title | IV ECM Threshold Cointegration Tests and Nonlinear Monetary Policy in Korea |
| title_full | IV ECM Threshold Cointegration Tests and Nonlinear Monetary Policy in Korea |
| title_fullStr | IV ECM Threshold Cointegration Tests and Nonlinear Monetary Policy in Korea |
| title_full_unstemmed | IV ECM Threshold Cointegration Tests and Nonlinear Monetary Policy in Korea |
| title_short | IV ECM Threshold Cointegration Tests and Nonlinear Monetary Policy in Korea |
| title_sort | iv ecm threshold cointegration tests and nonlinear monetary policy in korea |
| topic | Monetary Policy(통화정책) Korea(한국) Taylor Rule(테일러 룰) Threshold Cointegration(분계점 공적분) |
| url | https://doi.org/10.23895/kdijep.2005.29.2.135 |
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