Affine term structure estimation and policy announcement effects in Korea

This study estimates a three-factor affine term structure model using Korean government and corporate bond yields to examine how Bank of Korea policy rate changes affect the yield curve. By decomposing 3-year bond yields into expected short-rate and term premium components, we conduct event studies around fifteen major policy announcements. The results show that most yield movements are driven by changes in expected short rates, highlighting the role of forward guidance in the Korean context. Highlights Monetary policy effects in Korea are mainly driven by expected short-term rates. Term premiums primarily reflect compensation for interest rate and inflation risks. Monetary policy announcement effects depend on macro conditions.