Asymmetric adjustment of the equilibrium relationship between the nominal interest rate and inflation rate

Daiki Maki ()
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Daiki Maki: Graduate School of Economics, Doshisha University

Economics Bulletin, 2005, vol. 3, issue 9, 1-8

Abstract: This 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.

JEL-codes: C2 E4 (search for similar items in EconPapers)
Date: 2005-02-23
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Citations: View citations in EconPapers (10)

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