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| Daiki Maki |
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| ''Asymmetric adjustment of the equilibrium relationship between the nominal interest rate and inflation rate'' |
| ( 2005, Vol. 3 No.9 ) |
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| 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. |
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| Keywords: |
JEL: C2 - Single Equation Models; Single Variables: General
E4 - Money and Interest Rates: General |
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| Manuscript Received : Feb 23 2005 | | Manuscript Accepted : Feb 23 2005 |
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