Kyu Ho Kang

Changes in U.S. Inflation Persistence

We investigate the existence and timing of changes in U.S. inflation persistence. To do so, we develop an unobserved components model of inflation with Markov-switching parameters and we measure persistence using impulse response functions based on the model. An important feature of our model is its allowance for multiple regime shifts in parameters related to the size and propagation of shocks. Inflation persistence depends on the configuration of these parameters, although it need not change even if the parameters change. Using the GDP deflator for the sample period of 1959-2006, we find that U.S. inflation underwent two sudden permanent regime shifts, both of which corresponded to changes in persistence. The first regime shift occurred around the collapse of the Bretton Woods system at the beginning of the 1970s and produced an increase in inflation persistence, while the second regime shift occurred immediately after the Volcker disinflation in the early 1980s and produced a decrease in inflation persistence. Meanwhile, consistent with the New Keynesian Phillips Curve, the gap between inflation and its long-run trend displayed little or no persistence throughout the entire sample period.

The Effects of Monetary Policy Regime Shifts on the Term Structure of Interest Rates

We investigate how the entire term structure of interest rates is influenced by changes in monetary policy regimes. To do so, we develop and estimate an arbitrage-free dynamic term-structure model which accounts for regime shifts in monetary policy and price of risk. Our results for US data from 1985 through 2008 indicate that (i) the Federal Reserve’s reaction to inflation has changed over time, switching between “active” and “passive” monetary policy regimes; (ii) on average, the term spread in the “active” regime was wider than in the “passive” regime; and (iii) the yields in the “active” regime were considerably more volatile than in the “passive” regime. The wider term spread in the “active” regime reflects higher term premia associated with a more sensitive response of the short-term interest rate to inflation. Additionally, our analysis suggests that the model fit improves substantially when we account for regime switching in monetary policy and price of risk.

Estimation of State‐Space Models with Endogenous Markov Regime‐Switching Parameters

This study proposes and estimates state‐space models with endogenous Markov regime‐switching parameters. It complements regime‐switching dynamic linear models by allowing the discrete regime to be jointly determined with observed or unobserved continuous state variables. The estimation framework involves a Bayesian Markov chain Monte Carlo scheme to simulate the latent state variable that controls the regime shifts. A simulation exercise shows that neglecting endogeneity leads to biased inference. This method is then applied to the dynamic Nelson–Siegel yield curve model where the unobserved time‐varying level, slope and curvature factors are contemporaneously correlated with the Markov‐switching volatility regimes. The estimation results indicate that the high volatility tends to be associated with positive innovations in the level and slope factors. More importantly, we find that the endogenous regime‐switching dynamic Nelson–Siegel model outperforms the model with and without exogenous regime‐switching in terms of out‐of‐sample prediction accuracy.

Forecasting the Term Structure of Government Bond Yields Using Credit Spreads and Structural Breaks

In this paper, we investigate whether credit spread curve information helps forecast the government bond yield curve and whether the joint dynamics of the government bond yields and credit spreads have structural changes. For this purpose, we use a joint dynamic Nelson-Siegel (DNS) model of the term structures of U.S. Treasury interest rates and credit spreads. We find that this joint model produces substantially more accurate out-of-sample Treasury yields forecasts compared with a standard DNS yield curve only model. We also find that the predictive gain from incorporating the credit spread curve information substantially increases if the joint model accounts for structural changes in the dynamics of yield and credit spread curves. In addition, our model incorporates a zero lower bound restriction ensuring that our predictions are economically plausible.

The Effect of Helicobacter pylori Infection on Recurrence of Gastric Hyperplastic Polyp after Endoscopic Removal

Background/Aims Several previous studies suggest that eradication of Helicobacter pylori (H. pylori) leads to the disappearance of gastric hyperplastic polyps. However, little is known about the effect of H. pylori status and eradication on the recurrence of gastric polyps after endoscopic removal. Here, we investigated the recurrence of gastric polyps according to the final H. pylori status in patients who underwent endoscopic removal of gastric hyperplastic polyps. Methods Between January 2011 and December 2016, patients who underwent endoscopic removal of gastric hyperplastic polyps and were followed-up for more than two months were enrolled. The success of H. pylori eradication was assessed by histology and rapid urease test or urea breath test, at least 4 weeks after the completion of eradication treatment. At follow-up, the recurrence of gastric polyp was evaluated via esophagogastroduodenoscopy. Results Seventy-nine patients were enrolled. During the mean follow-up period of 16.4 months, the recurrence rate of gastric polyp was 25.3%. Among those who received H. pylori eradication therapy, the H. pylori persistent group showed a higher recurrence of polyp than the H. pylori eradicated group; but there was no statistical significance (42.9% vs. 21.7%, p=0.269). Regarding the final H. pylori infection status, the recurrence rate of gastric polyps was significantly higher in the H. pylori positive group than in the H. pylori negative group (42.9% vs. 18.9%, p=0.031). In multivariate analysis, the final H. pylori infection status was a significant risk factor for gastric polyp recurrence after endoscopic removal. Conclusions The final positive H. pylori infection status is significantly associated with higher recurrence of gastric hyperplastic polyps after endoscopic removal.

Forecasting the Term Structure of Interest Rates with Potentially Misspecified Models

This paper assesses the predictive gains of the pooling method in yield curve prediction. We consider three individual yield curve prediction models: the dynamic Nelson-Siegel model (DNS) and the arbitrage-free Nelson-Siegel model in addition to the random walk (RW) model as a benchmark. Despite the popularity of these three frameworks, none of them dominates the others across all maturities and forecast horizons. This fact indicates that those models are potentially misspecified. We investigate whether combining the possibly misspecified models in a linear form helps improve the predictive accuracy. To do this, we evaluate the out-of-sample forecasts of the pooled models in comparison with the individual models. In terms of density prediction, the pooled model of the DNS and RW models consistently outperforms those individual models regardless of maturities and forecast horizons. Our findings strongly suggest that one needs to try the pooling method rather than choosing one of the alternative models.

미국 장기시장금리 변동이 우리나라 금리기간구조에 미치는 영향 분석 및 정책적 시사점 (The Effect of U.S. Long-Term Interest Rates on the Term Structure of Korean Interest Rates)

Korean Abstract: 글로벌 금융위기 이후 선진국 중앙은행의 양적완화정책으로 풍부해진 국제투자자금을 매개로 선진국과 신흥시장국간의 금리동조화 현상이 높아지고 있다. 특히 미 연준이 정책금리를 인상할 경우 글로벌 금리가 상승하면서 국제금융시장 불안이 야기될 수 있을 것이라는 우려가 증대되고 있다. 이에 본 연구는 미국 장기시장금리 변동이 우리나라 금리기간구조에 미치는 영향을 분석하고 이에 따른 정책적 시사점을 도출하였다. 이를 위해 미국 장기시장금리가 우리나라 금리기간구조에 외생적으로 영향을 미칠 수 있는 새로운 형태의 모형을 구축하였다. 또한 시장금리를 기대금리와 기간프리미엄으로 분해하였으며, 금융상황 변화에 따라 금리기간구조의 구조변화(regime change)가 가능하도록 모형을 설정하였다. 아울러 본 연구에서 제시된 금리기간구조 모형은 베이지안 MCMC 기법을 활용하여 추정하였다. 추정결과, 우리나라의 금리기간구조는 2008년 12월에 구조변화가 발생한 것으로 분석되었으며, 구조변화 이후에는 만기별 국채수익률이 전반적으로 하락한 것으로 나타났다. 또한 구조변화 이후 미국 장기시장금리 변동이 우리나라 장기시장금리에 미치는 영향력은 크게 확대된 것으로 나타난 반면, 단기시장금리에 미치는 영향력은 통계적으로 유의하지 않은 것으로 분석되었다. 본 연구의 분석결과에 비추어 보면 향후 미 연준이 정책금리를 인상하면서 미국 장기시장금리가 상승할 경우 우리나라 장기시장금리는 단기시장금리가 상승하지 않더라도 상승압력을 받을 수 있을 것으로 예상된다. 이같은 경우 수익률곡선이 가팔라지면서 금융시장의 변동성이 확대될 가능성이 있으므로 필요시에는 정책 커뮤니케이션 뿐 아니라 기간프리미엄의 안정을 도모하기 위한 방안 등이 모색되어야 할 것으로 판단된다.English Abstract:: In this paper, we investigate the dynamic impact of U.S. long-term interest rate changes on the term structure of Korean interest rates. To do this, this study proposes and estimates macro-finance affine term structure models with a macroeconomic factor and regime shifts. In the model, the vector of exogenous factors consists of the U.S. long-term interest rate and three latent factors. The latent factors determine the shape of the Korean yield curve, and the U.S. interest rate can influence on the Korea yield curve through the latent factors. In addition, the possibility of structural changes in the Korean yield curve dynamics and its relationship with the U.S. interest rate are considered. Our estimation results based on an efficient Bayesian MCMC algorithm reveal that the yield curve of South Korea has experienced one-time drastic structural break in December 2008, and that after the break an unexpected positive shock on U.S. long-term interest rates induces a more substantial increase in the long-term interest rate of South Korea than before the break. Meanwhile, its impact on the Korean short-term interest rate is found to be insignificant at all times. As a result, our findings appear to support the preferred habit hypothesis. We believe that our framework will be useful for quantifying the Feds normalizing the stance of monetary policy on the government bond markets of emerging countries.