Estimating Interest Rate Setting Behavior in Korea: An Ordered Probit Model Approach
Hyeongwoo Kim ()
Authors registered in the RePEc Author Service: Wen Shi ()
No auwp2014-02, Auburn Economics Working Paper Series from Department of Economics, Auburn University
We investigate the Bank of Korea's interest rate setting behavior using a discrete choice model, where the Monetary Policy Committee revises the target policy interest rate only when the gap between the current market interest rate and the optimal rate exceeds a certain threshold value. Using monthly frequency data since 2000, we evaluate an array of ordered probit models in terms of the in-sample fit. We find important roles for the output gap, inflation, and the won depreciation rate against the US dollar. We also implement out-of-sample forecast exercises with September 2008 (Lehman Brothers Bankruptcy) for a split point, finding good out-of-sample predictability of our models.
Keywords: Monetary Policy; Bank of Korea; Ordered Probit Model; Target RP Rate; Interbank Call Rate; Taylor Rule (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dcm, nep-for, nep-mac, nep-mon and nep-sog
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:abn:wpaper:auwp2014-02
Access Statistics for this paper
More papers in Auburn Economics Working Paper Series from Department of Economics, Auburn University Contact information at EDIRC.
Bibliographic data for series maintained by Hyeongwoo Kim ().