South Korea Overnight Call Rate

This is the raw overnight call rate as recorded, carried without transformation as the volume-weighted average interest rate on unsecured overnight loans transacted between financial institutions in the interbank money market.

The call rate sits at the shortest maturity of the term structure, the base from which longer rates build through expected future short rates plus a liquidity premium (Hicks 1939). Its quote follows the yield-to-maturity convention that ties the yield to cash-flow timing, which at the overnight horizon collapses to a single day (Macaulay 1938). What is measured is the price of reserves exchanged without collateral, so the call rate is distinct from the secured overnight benchmark of the repo market (Duffie 1996).

This daily unsecured overnight rate is determined within the reserve-maintenance period and is measured at the transaction level of settlement data (Hamilton 1996; Furfine 1999). The level itself is steered toward a central operating target inside a standing-facility corridor, an arrangement that varies in form across operating procedures (Bartolini, Bertola, and Prati 2002; Bindseil 2004; Borio 1997).

The call rate is the observed overnight anchor rather than a node on an estimated curve, and it is distinct from the fitted zero-coupon curve recovered from coupon-bond prices and parameterized in closed form (McCulloch 1971; Nelson and Siegel 1987).

KRED applies no transformation, storing the rate exactly as recorded and describing only the measurement basis by which an overnight interbank rate comes to exist. No rescaling, deflating, smoothing, or annualizing is applied.

The figure is a volume-weighted average of the interest rates on individual unsecured overnight loans, following the transaction-level construction that identifies interbank lending from settlement data (Furfine 1999). The rate rests on the daily clearing of the reserves market (Hamilton 1996). A money-market rate of this kind is quoted as a simple annualized yield on the overnight principal and so follows the yield-to-maturity convention, while at a one-day horizon its duration mapping is degenerate (Macaulay 1938).

The overnight rate forms the front anchor of the term-structure estimation, but KRED does not re-estimate it here. That curve is recovered as a discount function from coupon-bond prices or fit with exponential splines (McCulloch 1971, 1975; Vasicek and Fong 1982). It is also represented through a parsimonious parameterization and its extension, constructed daily, and its estimation methods have been compared (Nelson and Siegel 1987; Svensson 1994; Gürkaynak, Sack, and Wright 2007; Bliss 1997).

The level itself is set through the corridor and open-market operations that hold the rate near target (Bindseil 2004; Borio 1997).

The overnight call rate is the operating target through which monetary policy transmits to the wider economy, and it sits at the center of the operating framework (Bindseil 2004; Borio 1997). Open-market operations and standing facilities hold the rate near a policy-determined level. Its day-to-day volatility around target is modeled through the corridor that bounds it (Bartolini, Bertola, and Prati 2002), and reserve supply produces the liquidity effect that moves the overnight rate within the maintenance period (Hamilton 1996).

Because the call rate aggregates decentralized interbank lending decisions, it serves as a barometer of funding conditions among banks (Furfine 1999).

Because the overnight rate is the shortest point of the curve, its expected path drives longer yields through the expectations and liquidity-premium components (Hicks 1939). The gap between the unsecured call rate and its secured counterpart reveals the collateral premium embedded within it (Duffie 1996).

The level of the call rate relative to a fitted curve shows whether the front end prices imminent policy moves (McCulloch 1971; Nelson and Siegel 1987; Svensson 1994). The yield concept on which that comparison rests comes from the yield-to-maturity convention (Macaulay 1938).

The overnight call rate is the floating reference against which short-dated funding, repo, and overnight-indexed positions are priced. Paired with its secured counterpart, the call-repo spread measures collateral value and counterparty risk (Duffie 1996).

Trading desks read the rate as a same-day signal of bank liquidity (Furfine 1999; Hamilton 1996). The target-and-corridor mechanism bounds how far the rate can drift intraday (Bartolini, Bertola, and Prati 2002).

The call rate compounded forward sets the riskless base of valuation. Discounting any cash flow begins from the overnight rate as the front node of the curve, which is recovered from coupon-bond prices, fit, and constructed daily (McCulloch 1971, 1975; Vasicek and Fong 1982; Nelson and Siegel 1987; Svensson 1994; Gürkaynak, Sack, and Wright 2007).

Duration and immunization are built on the full term structure anchored at this short rate (Fisher and Weil 1971). The underlying duration concept links a yield to realized holding-period return (Macaulay 1938).

On the 7,685 daily observations spanning 1996-01-03 to 2026-06-09, fit with a constant and trend, the unit-root battery does not agree on the order of integration of the overnight call rate. The augmented Dickey-Fuller test of Dickey and Fuller (1979), in the lag-augmented form of Said and Dickey (1984) with the lag length of Ng and Perron (2001), rejects the unit root at p = 0.0257, while the nonparametric Phillips and Perron (1988) test fails to reject it at p = 0.0707 and the Kwiatkowski et al. (1992) test rejects trend stationarity at p < 0.01, so the opposite-null pair does not resolve and no clean order of integration is assigned. The GLS-detrended escalation of Elliott, Rothenberg, and Stock (1996) is run for this ambiguous outcome and does not reject a unit root at p = 0.060, but under the house protocol it confirms the augmented Dickey-Fuller leg rather than overturning the disagreement, so the reading stays ambiguous.

Because the level is integrated, the mean-shift and serial-correlation diagnostics are run on the first difference, the stationary object those procedures require, since a break search or a portmanteau on an integrated level would spuriously segment and read near-unit autocorrelations (Bai and Perron 1998; Perron 1989). The multiple-break procedure of Bai and Perron (1998), computed by the dynamic-programming algorithm of Bai and Perron (2003), finds no break in the mean of the differenced series, consistent with the parameter-instability inference of Andrews (1993). The Ljung and Box (1978) portmanteau statistic, refining the original Box and Pierce (1970) form, is computed on the first difference and rejects the white-noise null at lags 10 and 20, with Q = 180.01 and Q = 615.15 and p = 0.000 and p = 0.000, and the automatic portmanteau test of Escanciano and Lobato (2009) does not detect further dependence with a statistic of 0.99 at p = 0.319.

The series is daily and has no low-integer seasonal period, so the seasonal-unit-root machinery of Hylleberg et al. (1990) and the Canova and Hansen (1995) seasonal-stationarity test are inapplicable and are deliberately not run, the degeneracy of the seasonal auxiliary regression at a daily period being the standard ground (Beaulieu and Miron 1992; Ghysels and Osborn 2001).