Asymmetric adjustment of the equilibrium relationship between the nominal interest rate and inflation rate
AbstractThis paper investigates the equilibrium relationship between the nominal interest rate and inflation rate in Japan using a threshold cointegration test, which allows for asymmetric adjustment. While the Engle-Granger method assuming symmetric adjustment cannot obtain the result of cointegration, a threshold cointegration approach provides clear evidence of the cointegration relationship characterized by asymmetric adjustment toward equilibrium. This shows that the long-run equilibrium relationship between the nominal interest rate and inflation rate is stable with asymmetric adjustment.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 3 (2005)
Issue (Month): 9 ()
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Find related papers by JEL classification:
- C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
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