The Analysis of daily Korea call rate (in Korean)

This paper investigates the movement of daily Korea call rate by considering the characteristic of open market operation and examines the predictability of the call rate. The study not only considers the settlement day effect, the end-of-quarter effect, the end-of-year effect which existing literature suggested, but also takes into account asymmetric daily open market operation and the effect of change in the U.S. federal funds rate on the Korea call rate for modelling the daily call rate. The empirical result shows that the Taylor (2001) type model which reflects the reversion of the actual call rate to the call rate target plays an important role in explaining the movement of daily call rate and helps to predict the call rate. If the call rate deviates from the target, the call rate adjusted to the target by 73% in the case of higher call rate than the target and by 46% in the case of lower call rate than the target. This result implies that there is an asymmetry in the daily open market operation. The out-of-sample forecast result suggests that the asymmetry Taylor type model seems better than existing other model particularly in the short forecasting horizon. We also find that the change in the deviation of the U.S. federal funds rate from the federal funds rate target seems to have an impact on the change in the call rate only one day but seems not to contribute to the prediction of the call rate. This result might imply that the Bank of Korea conducts monetary policy fundamentally with independence of the stance of U.S. monetary policy in terms of midium and long run. In terms of banks' liquidity management, the results of the paper suggest that since asymmetric behavior of open market operation seems to be important characteristic, banks take into account such characteristic for analyzing the supply of liquidity and predicting the change in the call rate in order to hedge interest rate change risk and liquidity risk.