The Long-Run Determinants of Indian Government Bond Yields

Levy Economics Institute, Working Papers Series, No 881

33 Pages Posted: 14 Jan 2017

See all articles by Tanweer Akram

Tanweer Akram

General Motors

Anupam Das

Mount Royal University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 12, 2017

Abstract

This paper investigates the long-term determinants of Indian government bonds’ (IGB) nominal yields. It examines whether John Maynard Keynes’s supposition that short-term interest rates are the key driver of long-term government bond yields holds over the long-run horizon, after controlling for various key economic factors such as inflationary pressure and measures of economic activity. It also appraises whether the government finance variable — the ratio of government debt to nominal income — has an adverse effect on government bond yields over a long-run horizon. The models estimated here show that in India, short-term interest rates are the key driver of long-term government bond yields over the long run. However, the ratio of government debt and nominal income does not have any discernible adverse effect on yields over a long-run horizon. These findings will help policymakers in India (and elsewhere) to use information on the current trend in short-term interest rates, the federal fiscal balance, and other key macro variables to form their long-term outlook on IGB yields, and to understand the implications of the government’s fiscal stance on the government bond market.

Keywords: Government Bond Yields, Interest Rates, Monetary Policy, India

JEL Classification: E43, E50, E60, G10, G12, O16

Suggested Citation

Akram, Tanweer and Das, Anupam, The Long-Run Determinants of Indian Government Bond Yields (January 12, 2017). Levy Economics Institute, Working Papers Series, No 881, Available at SSRN: https://ssrn.com/abstract=2898286 or http://dx.doi.org/10.2139/ssrn.2898286

Tanweer Akram (Contact Author)

General Motors ( email )

300 Renaissance Center
Detroit, MI 48243

Anupam Das

Mount Royal University - Department of Economics ( email )

4825 Mount Royal Gate SW
Calgary, T3E 6K6
Canada

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