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Structural Break in the Term Structure of the Korean Government Bond Yields (in Korean)

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  • Kyu Ho Kang

    (Department of Economics and Finance, Hanyang University)

Abstract

This paper studies the timing of structural break in the term structure dynamics of the Korean bond yields and investigates the nature of the break. To do this, we construct an arbitrage-free affine term structure model reflecting the possibilities of regime changes. Next, we fit the theoretical yield curve dynamics using a tuned Bayesian MCMC method. Based on the estimation results, we examine the number, timing and the driving forces of the breaks. Since 2001, it appears that the Korean yield curve underwent one-time break in late 2008. It seems to be attributed to the global financial crisis and the response of the bank of Korea. In particular, the term spread increased dramatically right after the break and it was mostly explained by the rise in the term premium rather than by the expectation hypothesis.

Suggested Citation

  • Kyu Ho Kang, 2012. "Structural Break in the Term Structure of the Korean Government Bond Yields (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 18(2), pages 29-52, June.
    • Handle: RePEc:bok:journl:v:18:y:2012:i:2:p:29-52
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    More about this item

    Keywords

    Bayesian MCMC Method; Structural Breaks; Target Rate; Term Spread;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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